Modest pay rises for U.S chief executives

Apr 11 2006 by Nic Paton Print This Article

Chief executives in the U.S saw their pay packages rise by a relatively modest seven-to-10 per cent last year, according to two new studies, as companies tried to present a more responsible face when it came to executive compensation.

According to HR consultancy Mercer's 2005 CEO Compensation Survey, for the Wall Street Journal, the median chief executive base salary remained flat at $975,000 last year.

Nearly one-third of the CEOs received no base salary increase last year, and the median annual CEO bonus rose 8.4 per cent to $1.4m.

Total annual compensation (base salary plus annual bonus) rose 7.1 per cent to $2.4m and the median annual increase in net income for companies in the study was 13 per cent.

These findings compared with a 10 per cent rise in compensation to $8.4m reported by consultants Pearl Meyer & Partners for The New York Times.

It estimated there was a 15 per cent increase in net income and a 6 per cent rise in total shareholder return among the 200 companies studied.

Bonuses rose 7.7 per cent to $1.8m, while median salary was up 3.8 per cent to $1m.

The Mercer study said the figures showed the continuing drive for "responsible" executive compensation was showing results.

Continued pressure on long-term incentives (notably stock options) had kept median total direct compensation (base salary, annual bonus, and the present value of long-term incentives) for chief executives in check, rising 5 per cent per cent in 2005 to $6.8m.

That increase corresponded closely with the median 6.8 per cent total shareholder return in 2005, another indication of a stronger connection between CEO compensation and company performance.

Peter Chingos, a senior executive compensation consultant with Mercer, said the pay-for-performance culture that began several years ago was now standard operating procedure for many American corporations.

"The close alignment of pay and performance reflected in the 2005 Mercer survey numbers indicates that organisations are moving toward more responsible executive compensation," he said.

Jan Koors, managing director of Pearl Meyer & Partners, added: "Annual pay and performance will never move in lockstep, since compensation programs also reflect long-term financial and strategic goals.

"However, they are clearly moving more in sync as more companies respond to investor pressures."