Total Compensation for Top Executives on the Rise Again
REDMOND, WA - February 17, 2011 - This quarter marks the first time in three years that total compensation for the highest paid executives increased. ERI tracks executive compensation in a specifically selected sample of publicly-traded companies to identify current trends. Highlights from this quarter's analyses include the following:
From February 2010 to February 2011, Total Overall Compensation for the highest paid executive increased 10.2%.
Base Salary in February 2011 continued to drop, losing 5% from the prior February.
Bonus/Incentives/Stock Awards more than made up the decrease in Base Salary with an increase of 31% for the year.
Compensation from Restricted Stock Awards rose 40% from February 2010 to February 2011, while compensation from Stock Options dropped by 5%.
Company Revenues continued to decrease, but appear poised for a rebound in future quarters.
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 reveals how compensation in these specific categories has changed over the past year. While four of the six components decreased, the two categories that increased (Bonus & Non-Equity Incentives and Restricted Stock Awards) account for larger proportions of overall compensation, and the observed increases were significant. Looking more broadly, fixed and discretionary compensation (such as Base Salary and the generic All Other Compensation) showed decreases, while the compensation components that are performance based (such as Bonus, Non-Equity Incentives and Restricted Stock Awards) showed sizable increases.
Over the last year, the rate of decline in total compensation of the highest paid executives has clearly been slowing (Figure 1). In fact, total compensation last showed an increase in February 2008, when the downturn in the economy appeared to catch up with the executives' overall compensation packages; then the declines accelerated until the start of 2010.
Company revenues continue to drop, however by a decreasing amount from the prior quarter. Thus, revenues are beginning to mirror the recovery in executive total compensation (Figure 2).
It is likely that this trend will continue, with revenues returning to positive territory by the end of the year.
According to Dr. Chris Chasteen, ERI Research Director, "ERI accurately predicted the positive trend in executive compensation but did not expect a swing of this magnitude.
It now appears that the revenue index will likewise rebound sooner than later.
To complete an economic recovery, this increase in revenues needs to translate into more jobs for the economy as well as higher executive pay."
Bonus and Non-equity Incentives
All Other Compensation
Total Overall Compensation
Company Revenues (Millions)
Table 1. Compensation Components Year-Over-Year
Figure 1. Change in Total Compensation From Quarter to Quarter
Change in Company Revenue From Quarter to Quarter
Trends of the Compensation Components, 2007 - 2011
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.