While chief executives generally saw larger base salaries and bonuses in 2003,
companies have developed stronger ties between CEO pay and performance, according
to a study by Mercer Human Resource Consulting and the Wall Street Journal.
The study examined the 2004 proxy statements of 350 of the largest public companies
in the United States. The study found that CEO pay generally reflected the companies'
better performance in 2003. Median total annual compensation (base salary and
bonus) was $2.1 million in 2003, up 7.2 percent from 2002, while corporate profits
increased a median of 19.2 percent, according to the study. By contrast, median
total annual compensation jumped 10 percent from 2001 to 2002, while corporate
profits increased a median of 14.8 percent.
The study found more companies moving away from stock options, and more companies
granting stocks outright via restricted-stock programs. Last year, 278 companies
awarded stock options to CEOs, down from 295 in 2002. In addition, the study
found that stock options are accounting for a smaller portion of the long-term
incentives offered to CEOs.
The Financial Accounting Standards Board's proposed new rules regarding the
expensing of stock options have played a role in fewer companies using stock-option
grants, according to Peter T. Chingos of Mercer. He sees more changes ahead.
"We are, in effect, moving from one era of executive compensation to the
next," says Chingos. "It will take some time for companies to retool
and realign their programs. Clearly, it was not 'business as usual' for executive
compensation in 2003, and we expect to see more changes ahead."
The study was published in a special section of the Wall Street Journal.