The Wall Street Journal / Hay Group CEO Compensation Study Reveals a Substantial Increase in CEO Pay Levels in 2010
Strong Company Performance Drives Bump in Compensation
PHILADELPHIA--(May 09, 2011)--CEO pay levels increased at a marked rate over 2009, buoyed by strong company performance, according to results from The Wall Street Journal/Hay Group 2010 CEO Compensation Study released today. The Wall Street Journal partnered with Hay Group for the fourth year on its annual study, which examines how large company CEOs were compensated across all forms of pay in fiscal year 2010.
"The 2011 proxy season hasn't been much of a test of shareholders' views on executive pay programs, with few using their advisory vote to oppose pay decisions"
After two years of declines, total direct compensation for CEOs jumped 11 percent in 2010 to $9.3 million. Base salaries remained flat at $1.1 million, while annual incentive payments increased by 19.7 percent to $2.2 million, yielding a 12.8 percent increase in overall cash compensation at $3.4 million. For the first time in two years, long-term incentives grew by 7.3 percent to $6.2 million.
"CEO pay has been under significant scrutiny, and some may have expected to see a different outcome in the 2010 proxies. But, don't let the figures misguide you: change has occurred," said Irv Becker, National Practice Leader of the U.S. Executive Compensation Practice at Hay Group. "The real story is under the hood of executive pay. Many companies have re-structured programs to align pay with performance by putting greater emphasis on performance-oriented long-term incentive programs."
Pay levels aligned with strong results in company performance, with companies achieving a median 17 percent increase in net income and providing a total shareholder return of 18 percent.
The study found that companies reversed course in 2010, steering away from retention-oriented time-vested stock plans and toward plans that pay out only when companies achieve long-term objectives. One of the strongest indications of this shift is seen by looking at long-term incentive (LTI) programs for CEOs. Performance awards comprised 41 percent of LTI value in 2010, up from 37 percent in the year prior. Stock options declined from 39 percent in 2009 to 34 percent in 2010, and time-vested restricted stock essentially remained flat at 25 percent (up from 24 percent in 2009).
Companies also further diversified by increasing the number of LTI vehicles used. Stock options remain the most frequently used, with 70 percent of companies using this vehicle (up from 64 percent in 2009), followed closely by long-term performance plans used by 68 percent of companies (compared with 58 percent in 2009). Time-vested restricted stock also saw an uptick, used by 55 percent of companies (up from 46 percent in 2009).
"The trend now is for companies to take more of a portfolio approach to long-term incentive grants in order to better achieve multiple objectives," said Becker.
Other key findings from The Wall Street Journal/Hay Group 2010 CEO Compensation Study include:
Companies Continue to Eliminate Perquisites: Fifty-five companies (16 percent of the sample) disclosed eliminating at least one perquisite. Atop this list were tax gross-ups, with 28 companies eliminating these, followed by 10 companies eliminating country club memberships. Personal use of the corporate aircraft remained the most prevalent perquisite in Hay Group's study, with 219 companies (63 percent) providing this perquisite.
"The 2011 proxy season hasn't been much of a test of shareholders' views on executive pay programs, with few using their advisory vote to oppose pay decisions," said David Wise, Senior Principal in the U.S. Executive Compensation Practice at Hay Group. "As shareholders continue to take on greater accountability in pay discussions, we expect them to place less emphasis on the opinions and analyses of shareholder advisory groups and more on better communication with boards and management."
Industry Snapshots: The biggest pay increases were seen in the Basic Materials sector, where pay levels increased 27.7 percent on the strength of a 60.4 percent increase in net income. Health Care companies showed the smallest increase at 0.2 percent and the second-smallest increase in profitability at 7 percent. The Financial sector showed the most interesting results, with a modest 1.2 percent increase in pay despite a 26.1 percent increase in profitability – an indication that boards are being cautious amidst regulatory and public scrutiny.
About The Wall Street Journal/Hay Group 2010 CEO Compensation Study
Hay Group's 2010 study focused on the primary elements of compensation for CEOs of the 350 largest U.S. companies to file their final definitive proxy statements between May 1, 2010 and April 30, 2011. Additional information about the study can be found at www.haygroup.com/wsj. Media inquiries and interview requests can be directed to Aven James at aven @ blisspr.com or at +1.212.584.5472.
About Hay Group's Executive Compensation Practice
Hay Group's Executive Compensation Practice works with Compensation Committees and Management at premier organizations across the globe to create tailored solutions that help them meet their governance responsibilities. For more than 60 years, we have helped companies of all sizes and across all industries navigate their complex executive pay issues to achieve desired outcomes and manage exposure. We understand the evolution of compensation practices and help clients manage these changes and prepare for scrutiny. For more information, please contact a consultant in Hay Group's Executive Compensation Practice at www.haygroup.com.
About Hay Group
Hay Group is a global consulting firm that works with leaders to transform strategy into reality. We develop talent, organize people to be more effective, and motivate them to perform at their best. With 85 offices in 49 countries, we work with over 7,000 clients across the world. Our clients are from the private, public, and not-for-profit sectors, across every major industry and represent diverse business challenges. Our focus is on making change happen and helping people and organizations realize their potential.
For Hay Group
Aven James, 212-584-5472
aven @ blisspr.com
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