Growth of Total Compensation for Top Executives Slows
REDMOND, WA - September 23, 2011 - Total compensation for the highest paid executives is up this quarter nearly 20% over this time last year (Table 1).
While this number suggests significant improvement over the last year, it should not be taken out of context.
Executive compensation as tracked by the ERI indices had declined throughout 2010 and only started to reverse course in the last quarter of 2010.
Comparing the year-over numbers, the growth this quarter is weaker than the numbers from the first quarter of 2011 (Figure 1).
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 August 2010 to August 2011, Total Overall Compensation for the highest paid executive increased 19.7% to $17.9 million per year
Restricted Stock Awards increased 27.8%
Bonuses and Non-Equity Incentives increased 32% for the year
Company Revenues were up 8.3%
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. RSAs and incentives (bonus and non-equity) accounted for the largest proportions of the gains in total compensation this quarter.
Looking at the trends in changes of the various compensation components over time against changes in company revenue, we see that the timing of the changes differ by component.
Figure 1 shows that company revenue actually decreased in the first part of 2010.
Incentives showed a significant decrease before the decrease in company revenues was observed while base salary didn't show a drop until after company revenues had reached their maximum rate of decline, which occurred in this quarter last year.
At the same time, incentives were moving from a declining rate to positive growth.
The result is that while company revenues were declining, the rate of decline switched from accelerating to decelerating and base salary changes and incentives were moving in opposite directions.
This suggests an inflection point in company performances reflected both in actual revenue and executive compensation.
Now, one year later, we see the opposite; incentives and base salary are still headed in different directions, but from a generally positive position to a negative while the rate of company growth has stopped increasing.
While the growth this quarter appears strong year-over-year, the trends do not.
Table 1. Compensation Components Year-Over-Year
Bonus & Non-equity Incentives
All Other Compensation
Total Overall Compensation
Company Revenues (Millions)
Looking again at the composition of the Total Compensation, we see that 77% of the increase was due to Bonuses and Non-Equity Incentives coupled with Restricted Stock Awards.
While these are also currently the largest components, that has not always been the case.
Figure 2 shows how the proportions of the various components have changed over time.
We can clearly see that prior to 2006, Stock Options, and to a lesser extent Bonuses, were a much larger component of Total Compensation.
Since 2006, Non-Equity Incentives and Restricted Stock Awards have become the components with the largest proportions.
"Looking at both their proportions of components and anticipatory nature, bonuses and non-equity incentives appear to be presenting yet another sign of uncertainty in the near-term expectations of company performance," noted Dr. Christopher Chasteen, Research Director at ERI.
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.