Princeton, NJ and Redmond, WA (December 10, 2002) -The highest paid executives in America saw a 6% increase in 2002 total cash compensation in the third quarter, 2002 compared with the 2001 year end index, according to the Executive Compensation Index figures released today by ERI Economic Research Institute and CareerJournal.com, The Wall Street Journal's executive career site. In contrast, during the second quarter of 2002, the highest paid executives saw a 0.5% decrease in their 2002 total cash compensation compared with the 2001 year end index.
The study also found that the 6% increase in executive compensation greatly outpaced a meager 0.34% rise in annual company revenues. This measurement can be used to determine an executive’s value to stockholders.
Changing the way executive compensation is shown on proxies may have had an impact on the Index. Although accounting standards do not require companies to expense stock options in the year they are granted, some companies have voluntarily done so, presumably in response to the change in the atmosphere of “corporate accountability." According to third quarter 2002 proxies, some companies have included stock options into annual bonus figures, rather than breaking them out separately as they have done in the past.
“In the compensation delivery package of the 1990s, stock options were believed to be the way to align shareholders’ interest and management interest," says Dr. David Thomsen, Director, ERI Economic Research Institute. “But in reality we saw how manipulating accounting records could inflate earnings, stock prices and the value of executive stock options, often to the detriment of long-term shareholders. The stock market decline, coupled with the Sarbanes-Oxley Act’s impact on deferred compensation, have wrecked havoc with long-term capital accumulation plans."
“Companies are shifting more importance to financial performance," says Tony Lee, editor in chief of CareerJournal.com. “We’re seeing a rise in incentive plans that pay bonuses in place of stock options. This may be a contributing factor in the increase in this quarter’s total cash compensation."
The Executive Compensation Index tracks the total cash compensation (salary + bonus) for the highest-paid executives at a cross section of 45 major U.S. businesses. The index (1997 = 100) stood at 166.8 on August 1, 2002, compared with 177.7 on November 2, 2002, for a 6.5% increase for the quarter.
The Index results are compiled by ERI/CareerJournal.com each quarter and capture total cash compensation reported in the previous 12-month survey period.
The entire Economic Research Institute (ERI)/CareerJournal.com Executive Cash Compensation Index and Report can be found on ERI’s site at www.eri-executive-compensation.com.
About CareerJournal.com CareerJournal.com is the premier career site targeted to executives and professionals. Featuring more than 30,000 top-level jobs and 2,500 articles on all aspects of job hunting and career management, the site attracts over 500,000 unique visitors monthly. CareerJournal.com features salary data, negotiating tips, popular columns from The Wall Street Journal, and exclusive content from its own dedicated news staff. The site was recently awarded a gold star and named Best Executive Career Site by Yahoo! Internet Life magazine, received a Best of the Web award from Forbes magazine and was selected Best Site by CareerXRoads in their 2002 Directory.
About Dow Jones
Dow Jones & Company (NYSE: DJ; dowjones.com) publishes The Wall Street Journal and its international and online editions, Barron's and the Far Eastern Economic Review, Dow Jones Newswires, Dow Jones Indexes and the Ottaway group of community newspapers. Dow Jones is co-owner with Reuters Group of Factiva, with Hearst of SmartMoney and with NBC of CNBC television operations in Asia and Europe. Dow Jones also provides news content to CNBC and radio stations in the U.S.
ERI Economic Research Institute was founded in 1987 to provide research for private and public organizations in the form of published reports and software database products. ERI’s research database software subscriptions are now widely used, with over 6,000 corporate and consulting subscribers (affecting over 20,000 organizations’ pay practices, including most of the largest U.S. companies). Subscribers include corporate compensation, relocation, human resources, and other professionals as well as independent consultants and counselors, and U.S. and Canadian public sector (including military, law enforcement, city/county, state/provincial, and federal government pay administrators). ERI also offers online learning through its Distance Learning Center, www.eridlc.com. ERI’s industry-leading Executive Compensation Assessor product was used in the calculation of the above index; for further information please go to www.eri-executive-compensation.com.