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CEO Financial Fortunes Drop Sharply, Watson Wyatt Proxy Analysis Finds
(April 14, 2009)
Economic Downturn Leads to More Than $13 Billion Decline for 80 CEOs Studied
Chief executive officers at many of the nation's largest corporations saw portions of their financial fortunes drop sharply last year as the financial crisis and slumping stock market resulted in smaller annual bonus payouts, diminished ownership values and reduced value for equity holdings, according to an analysis of proxy statements conducted by Watson Wyatt, a leading global consulting firm.
The 80 CEOs that Watson Wyatt analyzed experienced an aggregate decrease of $13.4 billion in levels of realizable pay (measured here by annual bonuses paid plus value of company ownership plus value of outstanding equity awards) in 2008. The typical CEO saw a decline of $39 million or 53 percent in value for the year, with a drop in annual bonuses alone of 30 percent. Shareholders saw a 40 percent loss on their investments and an overall loss of $2.23 trillion for the 80 companies.
"Clearly, most CEOs at large companies were not immune to the financial fallout from the economic crisis and stock market losses of the last year," said Ira Kay, global director of compensation consulting at Watson Wyatt. "Pay packages will be realigned to reflect the new economic reality that is currently unfolding. And while there will be an increased focus on risk and stock ownership, every board will likely settle on the pay mix that works best for its industry and company."
The 18 CEOs in the financial industry companies, the largest industry group in the analysis, collectively lost more than $3.1 billion in value, largely driven by decreases in the value of company ownership due to stock price declines in 2008. The analysis also found that despite a moderate stock market rebound in recent months, the typical CEO lost an additional 21 percent in equity value in the first three months of 2009.
"Executive pay and performance will remain lightning rod issues as shareholders, the media and Congress continue to scrutinize how companies are compensating their executives. To be effective, the pay programs of the future will need to reward top talent without motivating excessive risk or reaching unwarranted levels when the economy and the stock market recover," said Kay.
The Watson Wyatt analysis reviewed compensation levels for 2007 and 2008 at the first filers of the 20 largest companies with complete information available in each of six broad S&P industries. The industries include health care, technology, consumer, materials/industrials, financial and energy/utilities. Companies that were acquired or suffered bankruptcy during 2008 were included in the analysis.
About Watson Wyatt Worldwide
Watson Wyatt (NYSE, NASDAQ: WW) is the trusted business partner to the world's leading organisations on people and financial issues. The firm's global services include: managing the cost and effectiveness of employee benefit programs; developing attraction, retention and reward strategies; advising pension plan sponsors and other institutions on optimal investment strategies; providing strategic and financial advice to insurance and financial services companies; and delivering related technology, outsourcing and data services. Watson Wyatt has 7,700 associates in 33 countries and is located on the Web at http://www.watsonwyatt.com.
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