This post by Joseph E. Bachelder recently appeared in the New York Law Jounal.
Executive pay is being buffeted. It has been the subject of much legislative and other attention. The Troubled Assets Relief Program (TARP) has impacted significantly on executive pay at top levels of companies in the financial services industry that have received TARP aid. [1] Several bills pending in Congress would expand regulation of executive pay at companies receiving TARP aid, and other pending legislation would impose regulations on executive pay at public companies generally. The so-called “shareholder rights” movement continues to receive attention, including “Say on Pay” proposals directed at shareholder advisory votes on executive pay.
After a brief look at surveys showing a decrease during 2008 in executive pay levels, today’s column discusses the legislative developments just mentioned, including “Say on Pay” developments. Note also is made of statements about executive pay by leaders of the current administration in Washington.
Downturn in Pay Levels
Several recent surveys indicate that median CEO pay levels declined in 2008; by comparison, in 2007 they increased over 2006.
*All percentage changes shown are based on changes in median Total Direct Compensation for the years involved. (The New York Times (Equilar) survey indicates that certain perquisites and other benefits also are included in that survey.) Methodologies used by the different surveys in computing compensation differ (including, among other things, the companies they include in their respective surveys). For an understanding of the methodologies used, the actual surveys need to be examined.
**The New York Times survey on CEO pay for 2007 (NYT, April 6, 2008) expresses the percent change in 2007 versus 2006 as a change in average level of pay rather than change in median level of pay. On this basis, the New York Times reported the change as an increase of 5% for 2007 over 2006.
Available CEO pay surveys also indicate that Total Cash Compensation (salary plus annual bonus) declined in 2008 from 2007.
Since the end of the 1990s, only one other year, 2002, showed a measurable decrease in Total Direct Compensation of CEOs from the prior year, according to available surveys. (Based on data examined for 2000-2008 (not the same surveys noted in the preceding chart), 2005 was virtually flat with 2004, but all other years before 2008 show an increase over the prior year.) In contrast, over the long term, measured decade over decade, CEO pay has consistently risen during the past half century (increases in the 1950s and 1960s, however, were not significant). [2]
A single year does not represent a “pattern,” and it will take two or three more years, at least, to see whether current economic problems negatively impact on the long-term upward trend in CEO pay. Most likely, once the global economies, including the U.S. economy, return to better performance levels, executive pay levels will resume their customary trend of annual increases.