A short note on executive compensation - 5 Feb 2009

Thursday, February 05, 2009

A short note on executive compensation 

For
those of you who delight in misfortune for the fortunate, this
afternoon I spotted the following factoid in a newsletter (emphasis
added):

CEO EQUITY HOLDINGS DOWN. According to a study conducted recently by Steven Hall and Partners, the largest U.S. corporations' CEO's personally lost a whopping $54 billion over the most recent fiscal year.
These losses by CEO's of 175 major corporations amounted to 50 percent
of the value of their total holdings. The median value of individual
CEO total equity holdings, which includes shares owned outright,
exercisable and unexercisable option gains, and unvested restricted and
performance shares, fell from $60.9 million at the beginning of the
period to $29.5 million at year end. Over the same period, these
companies experienced a median decline in stock price of 37 percent.
"Equity compensation has long been viewed as the most direct approach
to linking the interests of executives with those of their
shareholders," says Steve Hall, Managing Director. "While such linkage
is appropriate and desirable," adds Pearl Meyer, Senior Managing
Director, "Prudent boards are undertaking a comprehensive review of
compensation programs to ensure that these programs are effective in
motivating management to restore and grow future shareholder value as
well as retaining critical leadership talent during this tumultuous
period."

Now, you can argue that we ought not to care
-- any group with a median stake (some of which is unvested) of $60
million can take the hit -- but you cannot argue that CEOs, most of
whom do not run financial institutions, have not already taken a
massive hit to their compensation, far greater in absolute and even
percentage terms than most people, including many people who lose their
jobs for a few months.

The point, of course, is not that we
should pity these people. Rather, it is that their compensation is
mostly subject to risk. I work for a successful company that generates
lots of cash in a recession-resistant industry, and by some methods of
measurement I have essentially worked for free the last two years. I am
not complaining, but I am reporting without embarrassment or shame. The
possibility of significant upside in good times, however offensive to
the Great Unwashed^*, is the reward for bearing the risk of big hits during the hard times.

more...http://tigerhawk.blogspot.com/2009/02/short-note-on-executive-compensation.html