While overall total compensation decreased, base salary remained almost the same (up 0.3%), while three components of pay increased: Restricted Stock Awards (up 4.3%), Non-equity Incentives (up 16.0%), and Pension (up 22.8%). The recent drop in share prices will also have an impact on the value of the RSAs. Pay components that reported decreases include Stock Options, LTIP, and "All Other".
ERI created this index of Executive Compensation 12 years ago. Since its inception in 1997, revenues of the US companies studied increased nearly 7 times faster than the compensation of the companies' highest paid executives. Total revenues increased by 121.5% compared to a 17.5% increase for executive compensation over the 12 year period.
During the past 12 months, Overall Total Compensation of the highest-paid executive decreased by 7.4%, while revenues grew 7.0%, with the average top executive receiving Overall Total Compensation of $17,724,805. The downturn in revenues which occurred in late 2008 and early 2009 is not yet reflected in these totals but that will change in the coming months as more companies complete their fiscal years and file their annual reports with the SEC.
The changes in the components of compensation during the most recent 12 months for the highest-paid executive are as follows:*
|February 2008||February 2009||Percent Change|
|Bonus and Non-equity Incentives||$3,697,281||$4,288,915||16.0%|
|Total Overall Compensation||$19,132,291||17,724,805||-7.4%|
|Company Revenues (Millions)||$58,924||$63,039||7.0%|
*The new SEC 2007 Summary Compensation Table format has redefined component dollar categories, accounting for some of the variance shown above.
The highest paid executives of US companies saw an increase in Overall Total Compensation of 17.5% during the past 12 years, but the compensation components reported have changed significantly during this time period due to SEC reporting requirements.
Comparing Revenue growth to Total Compensation growth during this same period shows the average dollar amount of company revenues increased by nearly 121.5% as compared to 17.5% for total compensation. This means the dollar revenues increased nearly 7 times faster than the average dollar amount of the Executive Total Compensation package.
Compensation Components in 1997 and 2009 are shown below:
|Compensation Components||1997 Average Dollar Amount||2009 February Dollar Amount||Percent Change|
|Bonus and Non-equity Incentives||$1,579,871||$4,288,915||171.5%|
|Total Overall Compensation||$15,086,550||$17,724,805||17.5%|
|Company Revenues (Millions)||$28,547||$63,039||121.5%|
The Components of Total Compensation for the highest paid executive have changed in relative importance during the past 12 years as shown below:
|RSA (restricted stock)||10.2%||31.0%|
* Non-equity Incentives and Pension were not part of the format of the 1997 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. "More corporate boards are tying compensation packages to performance through Incentive Plans, Stock Options, and Restricted Stock Awards. There has been a noticeable shift away from Stock Options to Restricted Stock Awards. Pension amounts were not part of the 1997 reporting requirements but are currently about 8% of executive compensation. With the recent drop in the value of the stock market, it appears Pensions and Non-equity compensation components are accounting for a greater share of Total Compensation," observed Dr. David Thomsen, 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. ERI has tracked pay for the highest paid executive in this group of companies since 1997.
ERI Economic Research Institute is a leader in compensation 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. Its industry-leading Executive Compensation Assessor® & Surveysoftware reports executive cash compensation 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.