Downward Slide in Top Executive Compensation Slows
REDMOND, WA - November 15, 2010 - While the 2010 SEC reports coming in still show declines in executive compensation from the prior year, the rate of decline has slowed.
ERI tracks executive compensation in a specifically selected sample of publicly-traded companies to identify current trends.
Highlights from the analyses include the following:
From November 2009 to November 2010, Total Overall Compensation for the highest paid executive was down 1%;
The November 2010 average was $15,514,501, down from $15,654,492 in November 2009.
The decline from August 2009 to August 2010 was 7%, while the decline from May 2009 to May 2010 was 10%.
Base Salary in November 2010 dropped over 5% from the prior November.
Bonus/Non-Equity compensation increased 2%, and Restricted Stock Awards increased over 10% for the year.
Company Revenues continued to decrease, dropping over 10% from November 2009 to November 2010.
Executive compensation typically consists of several components – a fixed base salary, a variable bonus in cash and/or non-equity incentives based on meeting performance goals, and a variable equity payment in stock (either restricted stock awards or stock options) based on stock prices.
Pension and other compensation components are added to the compensation package for these top executives.
Table 1 demonstrates how drops in Base Salary and Stock Options have been counterbalanced by increases in Bonus/Non-Equity Compensation and Restricted Stock Awards.
The component with the largest decrease over the year (a drop of 44% in discretionary "All Other Compensation," and a drop of 60% from 2008) makes up a relatively small proportion of total compensation.
Much more influential is the 5% drop in Stock Awards, which significantly reduced the gains made in Restricted Stock Awards (Figure 2).
The divergence in trends of these two types of compensation provides some insight into how companies are addressing executive compensation in times of uncertainty in the stock market.
Company revenues continue to drop.
The ERI Executive Compensation Report in May 2010 found company revenues down 9.9% from the prior year, the August 2010 report showed a decline of 10.6% from August 2009, and this November report shows company revenues down 10.1%.
This could be an indication that the decline may be approaching a reversal, but it is too early to determine if this is, in fact, the case.
Figure 2 shows that, in periods of economic uncertainty, the Bonus/Non-Equity Index shows sharp declines, for example, from 2001 to 2002 and 2008 to 2009.
During an economic recovery, such as from 2002 to 2005, this index made steady gains.
The November 2010 report includes a gain this quarter, the first noted in two years.
While not all compensation components made gains, this may be another indicator that the negative trend in executive compensation could return to positive in the near future – though a return to the growth experienced during 2004-2005 may be a long way off.
Dr. Chris Chasteen, ERI Research Director, noted, "The slowdown in decline of company revenues and total overall compensation combined with the positive gains in the Bonus/Non-Equity component of executive compensation may be evidence of a broader change in US executive compensation.
ERI will continue to monitor the company performance and compensation reports to see if these initial findings materialize into trends."
Bonus and Non-equity Incentives
All Other Compensation
Total Overall Compensation
Company Revenues (Millions)
Table 1: Highest Paid Executive Compensation by Compensation Type
Key Compensation Components and Company Revenue over Time
Trends of the Compensation Components, 2007 - 2010
About ERI Economic Research Institute:
ERI Economic Research Institute, Inc., is a leader in compensation and job content information. With data gathered from online surveys and an extensive survey library, ERI's staff of researchers provides subscribers with assessments of salaries, relocation costs, cost-of-living comparisons, and executive compensation. ERI's compensation databases contain over 20 years of collected data, covering the United States, Canada, the United Kingdom, and other countries throughout Europe. ERI subscribers include the American Red Cross, Alaska Airlines, Monster Worldwide, Aon Consulting, Honda, Amtrak, Adidas America, Inc., the IRS, the CIA, and the United Nations. ERI’s products include the Salary Assessor®, Geographic Assessor®, Relocation Assessor®, Executive Compensation Assessor®, and Nonprofit Comparables Assessor™ software and Occupational Assessor, eDOT®. For more information about ERI and its products, visit www.erieri.com.