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Extra
Average CEO now makes $10.7 million
Pay packages 5% fatter in 2004, but corporate leaders are working harder for their stock incentives, survey finds.
By Reuters
Chief executives at many of the biggest U.S. companies got an average 5% raise last year to $10.7 million, and more corporate boards concluded that pay for performance is the way to go in the executive suite.
In a survey of 50 large U.S. companies, restricted stock and other performance-based incentives constituted 41% of long-term CEO compensation, up from 18% in 2003. The percentage was the highest since 1994.
Stock options, meanwhile, constituted 59% of long-term awards, down from 82%, according to the survey released Thursday by Pearl Meyer & Partners, a New York-based pay consultant. Long-term awards, which exclude salaries and bonuses, accounted for about 63% of total compensation.
Pay for performance
According to the survey, the average CEO salary was unchanged at $1.2 million. The average long-term incentive, meanwhile, more than doubled to $2.7 million, and the average option grant fell 23% to $4 million.
The survey suggests that companies are heeding investor demands for tying CEO pay more closely to meeting financial goals.
At the same time, it shows that companies are granting fewer stock options, which they must treat as an expense under accounting rules slated to take effect in June. Historically, the current, more lenient rules allowed many companies to give away options without tying them to specific performance goals.
"Companies are adopting plans that focus executives more on improving the financial strength of the underlying business for the long haul, rather than riding the option wave," said Ed Archer, a managing director for Pearl Meyer.
No more giveaways
A case in point is Stanley O'Neal, Merrill Lynch & Co.'s (MER, news, msgs) chief executive, whose 2004 compensation totaled $32 million. Of this amount, $31.3 million was restricted stock that doesn't vest until 2009.
A year earlier, just 40% of O'Neal's $28 million of compensation was restricted, and nearly half came as a bonus.
Archer said companies are responding to the "cry among big shareholders to shift away from stock options, which they view as a giveaway, and toward performance-based compensation.''
He also said companies have learned from 2001 and 2002, when falling U.S. stocks left many stock options worthless. "That's a problem because it's tougher to motivate executives when their stock options are under water," he said.
The survey group comprised service and industrial companies with average annual revenue of $25 billion. Archer said the sample represented a wide cross-section of industries.
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