How did chief executives fare in the waning days of 2008? A few educated guesses:
Salaries. Last year, chief executive officers of at least 32 publicly traded companies took the symbolic salary of a dollar, according to Equilar Inc., a research company in Redwood Shores, Calif. Others accepted steep reductions. The CEO at FedEx took a 20 percent cut; the co-CEOs at Motorola, 25 percent. “In the past you might have frozen salary or not given them an increase, but a reduction is unheard of,” says Irv Becker, national practice leader for Executive Compensation at the Hay Group in Philadelphia.
Bonuses. As companies begin to pay bonuses for 2008, payments pegged to performance are likely to be lower than the previous year. Most executives qualified for bonus money, but many fell short of targets. Compensation committees have tough choices, says Jim Heim, managing partner at Pearl Meyer & Partners in Southborough, Mass. Some options:
If they’ve hit their objectives, should executives receive the amount due, even though shareholders suffer? Or should bonuses be cut so they share the pain? Fifty-five percent of respondent from 371 organizations in a Pearl Meyer survey, “Executive Pay in the New Economy,” conducted in fall 2008, said they would pay bonuses at formula, and 23 percent said they planned to cut them.
If executives haven’t hit targets and long-term equity compensation has been wiped out because of the stock market collapse, should companies pay retention incentives? Twenty-nine percent of respondents said they’re considering some form of discretionary award to select employees, suggesting that top talent has choices and needs to be rewarded.
Long-term incentives (LTI). Because of performance shortfalls, LTI payouts for 2008 are projected to decline as well. In the Mercer survey above, the majority of respondents expected below-target payouts for 2008 performance-based LTI programs. Of these, three-quarters said they would hold to performance standards and not make adjustments to boost pay.
“Operations measures will be increasing,” Bob Cartwright, SPHR, president of Intelligent Compensation LLC in Pflugerville, Texas, says. “You could hit all your financial measures, but if your operations stink, you could be running your company into the ground. Boards would be remiss if they didn’t incorporate both financial and operational drivers.”
The author is a contributing editor of HR Magazine, a lawyer and a professor of management studies at Marist College in Poughkeepsie, N.Y.