Executive Pay and All Its Components Drop

REDMOND, WA - August 7, 2009 - During the most recent 12 months, average Total Overall Compensation of the highest paid executives in US publicly-held companies decreased by 8%. "This 12 month period is the first time every component of Executive Compensation decreased since ERI Economic Research Institute created this index in 1997", observed Dr. David Thomsen, ASA, Director, ERI Economic Research Institute.

The Compensation Indices reflect data from a representative group of 45 companies randomly selected from the approximately 6,500 companies that report compensation data to the Securities and Exchange Commission (SEC). The index has been adjusted to reflect merger activity that has occurred since the inception of the index 12 years ago.

Dollar Changes in Compensation Components - Past 12 Months

From August 2008 to August 2009, Total Overall Compensation of the highest-paid executive decreased 8.0%. The average top executive received $16,091,931 while average company revenues grew 5.1%. During this period all the components of compensation decreased for the highest-paid executive as follows:

 

  August 2008 August 2009 %Change
Salary $1,252,974 $1,226,974 -2.0%
Bonus & Non-equity Incentives $4,071,078 $3,848,968 -5.5%
Restricted Stock Awards (RSA) $5,039,589 $4,684,349 -7.1%
Stock Options $4,185,174 $3,968,588 -5.2%
Total RSA/Options $9,234,763 $8,652,937 -6.2%
Pension $1,763,583 $1,595,208 -9.6%
All Other Compensation $1,173,609 $767,844 -9.8%
otal Overall Compensation $17,485,106 $16,091,931 -8.03%
Company Revenues (Millions) $60,756 $63,836 5.1%

Dollar and Component Changes in Compensation since 1997

During the 12 year period, Total Overall Compensation of highest paid executives in the US publicly-held companies has changed at an annual rate of slightly more than 0.5% and for the 12 year period has changed 6.7%.

 

Annual Rate of Change
0.54%
Total Change 12 years
6.7%

The following are the changes in the components of Total Compensation for the highest paid executive during the 12 year period.

 

Compensation Components 1997 Average
Dollar Amount
2009 August
Dollar Amount
% Change
Salary $930,640 $1,226,974 31.8%
Bonus & Non-equity Incentives $1,579,871 $3,384,968 143.6%
Restricted Stock Awards(RSA) $1,310,575 $4,684,349 257.4%
Stock Options $10,487,946 $3,968,588 -62.2%
Total RSA/Options $11,798,521 $8,652,937 6.2%
Pension   $1,595,208 -
LTIP $441,749 0  
All Other Compensation $335,769 $767,844 126.7%
Total Overall Compensation $15,086,550 $16,091,931 6.74%
Company Revenues (Millions) $28,547 $63,836 124.3%

The components of Total Compensation for the highest paid executive have changed in relative importance during the past 12 years as shown below:

 

  1997* 2009
Salary 16.5% 10.3%
Bonus 21.7% 4.0%
Incentives (Non-Equity) *** 16.3%
Restricted Stock Awards (RSA) 10.2% 32.3%
Stock Options 42.5% 24.0%
Total RSA/Options 52.7% 56.4%
Pension *** 8.2%
LTIP 3.6% 0.0%
All Other Compensation 5.4% 4.8%


*** Non-equity Incentives and Pension were not part of the format of the 1997 SEC Summary Compensation Tables.

The trend away from guaranteed base salary along with a shift from stock options to restricted stock awards has continued throughout the period of the study. "While there is a tread towards tying compensation packages to performance through Incentive Plans, Stock Options, and Restricted Stock Awards, there is also a shift away from Stock Options to Restricted Stock Awards. Pensions and Non-Equity-based compensation are now accounting for a greater share of Total Compensation", observed Dr. David Thomsen, ASA, Director, ERI Economic Research Institute.

Index Value Changes since 1997

ERI created the Executive Compensation Index 12 years ago. Index values differ from dollar values as Index Values are calculated on the percentage (%) changes rather than the dollar ($) amount of change. Since its inception in 1997, ERI has tracked the index values for the highest paid executive in each of the 45 companies which comprise the Index.

The August 2009 Revenue Index stands at 269.9 (1997 = 100), while the August 2009 Total Compensation Index stands at 256.3 (1997 = 100). This indicates that, among the 45 companies in the index, the average percentage increase in Total Compensation has been slightly lower than the average percentage increase in Revenues. Since 1997 the Total Compensation Index has increased by 156.3 points, while the Revenue Index has increased 169.9 points.

The index value changes indicate that total compensation for the highest paid executive has increased at about the same pace as company revenues.

Total Compensation Index versus Revenue Index Changes 1997-2009

 

  1997 August 2009 Index Change
Total Compensation 100.0 256.3 156.3
Revenue 100.0 269.9 169.9

To view additional graphs and charts from the August 2009 Executive Compensation Index, please visit the News Room at www.erieri.com.

ERI Economic Research Institute is a leader in compensation analytics and performance metric information. Based in Redmond, Washington, ERI provides salary survey and cost-of-living research reports and software to over 15,000 organizations worldwide. With information gathered from online surveys and an extensive survey library, ERI provides subscribers with assessments on salary, relocation, the cost of living, and executive compensation. ERI's pay data covers the United States, Canada, and the EU. ERI's Executive Compensation Assessor® & Survey software reports executive cash compensation in 1,287 industry sectors based on information from private executive pay surveys, as well as publicly reported information for 6,500 US, 1,150 Canadian, and 2,300 UK and EU organizations. For analysis of executive pay in tax-exempt organizations, see ERI's Nonprofit Comparables Assessor™& Tax-Exempt Survey software, which utilizes the ERI database of 28,000,000 measures from over 525,000 organizations. Both the IRS National Appeals and Tax Exempt Entities Divisions use these two Assessor Series® products in their reviews of reasonable and unreasonable compensation. Visit www.erieri.com to learn more about ERI and to review its other talent management and compensation indices.

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