Median Compensation for S&P 500 Chieftains Declines in 2009 - IR insights, trends and news, 2011, May 17

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Chieftains Declines in 2009 http://bit.ly/dpTReU

A study entitled, "2010 CEO Pay Strategies," conducted by Equilar (www.equilar.com), an executive
compensation research firm, finds that median S&P 500 CEO
compensation fell for the second year in a row, declining by 7.9 percent
from 2008 to 2009. In 2009, median total compensation for S&P 500
CEOs was approximately $7.5 million, down from approximately $8.2
million in 2008.Equilar’s analysis of S&P 500 CEO compensation draws
on recently filed proxy data for 342 companies in the S&P 500, all
of which have had their CEOs in place for at least two full years. By
selecting only incumbent CEOs, the study avoids distortion from new-hire
awards and more accurately tracks year-over-year changes in
compensation. The companies included in this report ended their most
recent fiscal year between June 30, 2009 and January 31, 2010.

Other findings from Equilar’s study include:

• Bonuses Are Larger and More Prevalent – The bonus
  payout was the component of total compensation that saw the largest
  growth from 2008 to 2009. Median total bonus payouts for S&P
  500 CEOs increased to $1,500,000 in 2009, up 8.5 percent from the
  2008 median of $1,383,000. Additionally, only 14.6 percent of CEOs
  received no bonus payout at all in 2009, compared to 18.4 percent
  in 2008.


• Equity Compensation Falls in 2009 – A sharp decline
  in the value of option awards was the greatest contributor to
  declines in total pay. The median value of option awards and stock
  awards fell by 17.7 percent and 0.6 percent, respectively. Options
  maintained their status as the most prevalent equity-award vehicle,
  with 71.9 percent of CEOs receiving option awards.


• Annual Bonuses Bounce Back – Companies with fiscal
  years ending between June 2009 and November 2009 paid a lower
  median annual bonus in fiscal 2009 than in fiscal 2008. As the year
  progressed, however, bonuses for chief executives increased. The
  most recently available filings, from companies with fiscal years
  ending in December 2009 and January 2010, showed an increase of
  13.3 percent in total CEO bonuses.


• Pay Design Shows Incremental Signs of Change –
  Compensation design remained relatively stable in 2009, with stock
  awards continuing to constitute the largest portion of total pay.
  In 2009, over 60 percent of total CEO compensation was delivered in
  the form of stock or options.


• Equity Vehicle Mix Shifts to More Stock, Fewer Options
  – Although options are still the most popular equity type, more
  companies granted only restricted stock in 2009, and fewer awarded
  options in 2009 compared to 2008. Most of the equity mix remained
  stable, with a slight increase in the number of companies awarding
  three different equity vehicles.


• Bonuses Responsive to Performance – Annual bonus
  payouts tracked TSR performance closely, with bottom-quartile
  companies paying a median bonus that decreased 10.4 percent from
  2008 to 2009. At top-quartile companies, the median bonus increased
  by 86.8 percent from 2008 to 2009.


• Equity Awards Find New Life at End of 2009 – Large
  numbers of options were granted in early 2009, with exercise prices
  at or near market lows, and are now seeing big gains in their
  intrinsic value as the market has rebounded. Stock awards also
  benefited from the rise in prices, with an average increase of 18.7
  percent over their grant-date value.


• Healthcare CEOs Maintain Highest Total Pay –
  Healthcare CEOs continued to receive the highest compensation by
  industry, with median total pay of $10.5 million in 2009. However,
  median total CEO compensation in the Services and Utilities
  industries saw the largest growth from 2008 to 2009, increasing 9.8
  percent and 5.6 percent, respectively.

The study concludes with a discussion of trends for the current year
including:

• Shift to Risk-Mitigating Pay Practices – With new
  disclosure regulations effective in 2010, companies face even
  greater pressure to outline a clear relationship between pay and
  performance. The requirement of a new proxy section, detailing pay
  policies and their potential to induce excessive risk, has caused
  many companies to review their practices. For some, the review has
  revealed a need to adopt effective policies that provide longer-term
  accountability, including clawbacks, ownership guidelines, and
  deferral periods. As regulators and investors alike push for more
  effective relationships between pay and performance, companies will
  look for new ways to make that connection real and apparent.


• Widespread Holding Requirements – The use of
  additional holding requirements following the vesting of equity
  awards has greatly increased over the past year. These holding
  policies ensure that a portion of executive pay is directly related
  to the long-term performance of the company. In 2010, the number
  of companies using holding requirements continues to grow. Many
  companies have also modified their policies to require that a larger
  portion of equity awards be held for a given period before they are
  eligible for sale.


• Diversification of Equity Types – As companies
  continue to alter pay plans to link them more closely to
  performance, some are starting to use multiple vehicles to
  incentivize their executives. The use of options, restricted stock,
  and performance shares promotes different approaches to adding
  value to a firm. Performance shares encourage executives to reach
  certain financial milestones besides increasing stock price.
  Restricted stock guarantees at least some value, while options rely
  on an increase in stock price to realize their value. The use of
  multiple vehicles can reward executives for success in a number of
  areas critical to a company’s success, instead of focusing on a
  singular approach to maximizing realized value for one type of
  equity.