Top Executive Compensation Growth Matches Company Revenue Growth
REDMOND, WA - December 7, 2012 - Total compensation for the highest paid named executive officer increased 8.5% from this time last year (Table 1), close to the rate of growth in company revenues over the same period (at 8.4%).
This continues a trend of increasing total compensation since May of this year and an acceleration of the growth from the August report of 6.2%.
ERI tracks executive compensation in sample of publicly traded companies across an array of industries specifically selected to identify current trends.
Highlights from the November 2011 to November 2012 analyses follow:
Total Overall Compensation for the highest paid executive increased 8.5% to $19.4 million per year
Base Salaries rose 1.7%
Bonuses and Non-Equity Incentives declined 8.7% and 9% respectively (versus prior declines of 9% and 12.4% last quarter)
Restricted Stock Awards (RSAs) rose a significant 18.4%
Company Revenues rose 8.4%
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.
Total compensation for the highest paid executives tends to move in the same direction as company revenues (Figure 1). Often changes in executive compensation in the Index precede the corresponding changes in revenues.
Figure 1 shows that executive compensation started to spike in late 2010 and company revenues began to move from losses to gains in early 2011.
In mid-2011, annual revenue growth leveled off at around the current 9% - back to the same levels reported in late 2007.
However, when company revenue growth leveled off, growth in top executive compensation became negative.
This signaled one of two possible scenarios – 1) growth in company revenues was preparing to also slow and perhaps return to overall losses or 2) the sharp drop in growth of total compensation was in reaction to the slowing growth of company revenues rather than an anticipation of future company losses.
Since the growth in compensation has been positive since May and now matches the growth in company revenues almost precisely, this suggests the latter scenario.
However, the impact of various approaches to addressing the impending "fiscal cliff" might affect these relationships in future quarters.
Most of the growth over the past year in executive compensation measured in the Index has been in RSAs (which increased 18.4% to an average of nearly $7.3 million).
Figure 2 breaks out the compensation component trends over time and shows the increase in the proportion associated with RSAs over the other components.
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 majority of the Fortune 500 and thousands of other small and medium sized companies. 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.