Stocking Up: Post-Crisis Trends in U.S. Executive Pay is the title of a new white paper from ISS by Subodh Mishra.
The paper explores how the executive pay package mix and overall total annual compensation levels have changed in the wake of the financial crisis and the role played by stock-based awards in fueling the spike in total executive pay. The analysis covers total annual compensation (TAC) for the top five highest-paid named executive officers (NEOs) at Russell 3000 companies in fiscal years 2008, 2009, and 2010.
A few of the key findings include:
- Across the full Russell 3,000 index, the proportion of pay for the top five named executive officers (NEOs) made up of stock grants rose from 19 percent in 2008 to 28 percent fiscal 2010.
- The average value of pay packages for the top five paid NEOs has grown by 37% for analyzed companies, with the greatest growth at S&P Mid-Cap companies (63%) followed by S&P 500 firms (54%).
- The average value of stock and option grants has surged by 108% and 89%, respectively, while bonuses have declined 7%.
- All other pay, which includes payments in connection with tax gross-ups and exit compensation, is down by more than one-fifth, likely stemming from post-crisis investor scrutiny of such payments.
Mindful of the outcry over particular elements of pay packages, companies began scaling back bonus awards as well as payments related to “golden parachutes” and other forms of exit pay following the crisis.
Indeed, such components of executives’ total annual compensation declined in fiscal 2009 with some elements, including those dealing with exit pay, continuing to decline modestly into fiscal 2010.
But that has been more than offset through in- creases in other pay elements, most notably awards tied to company stock. The result is a 37 percent surge in total annual compensation paid to C-suite officers from fiscal 2008 to 2010 with stock awards now constituting more than half of the total pay pie.
As such, this paper explores how the executive pay package mix and overall total annual compensation levels have changed since fiscal 2008 and the role played by stock-based awards in fueling the spike in total executive pay…
While many companies have moved to tighten the link between pay and performance in the wake of the financial crisis, a general disconnect is evident when comparing market performance against the average pay awarded to executives in our study.
Among my conclusions after reading the report, shareowners should continue to put pressure on companies not only to align pay for performance but to also bring the overall rate of pay increases down. In that regard, the USPX Shareowner Guidelines For Say-On-Pay Voting remains a valuable resource.