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Chief executive officers at the largest U.S. companies saw the value of their company stock ownership plunge as the U.S. equities market declined, according to an annual study by consultancy Watson Wyatt.
“When the economy prospers and the stock market does well, executives reap the rewards. But when markets decline, executives also suffer financial setbacks,” said Ira Kay, global director of executive compensation consulting at Watson Wyatt. “The financial crisis and market downturn in 2008 bear this out.”
The study, 2009/2010 Report on Executive Pay: Moving Beyond the Financial Crisis, found that the total value of CEO stock ownership and outstanding equity awards and bonus payouts for CEOs decreased by 42 percent in 2008, which is larger than the 34 percent decline experienced by a typical shareholder at those companies. The stock market recovery in 2009, however, has mitigated some of the overall loss incurred in 2008. In aggregate, the CEOs analyzed in the study lost a combined $53.7 billion—roughly $55 million for the average CEO—in 2008, compared with $3.2 trillion for shareholders of the same set of companies.
The study is based on public data from 982 U.S. companies in the S&P Super 1500 that filed proxies before July 2009.
CEOs and Shareholders Experienced Reductions in value with Stock Price Declines
Number of companies
Change in companymarket value
Change in value of CEO ownership + outstanding equity + annual bonus
Total dollar value ($M)
Median percentage change
Source: Watson Wyatt.
The study also noted that compensation committees continue to structure CEO pay programs so companies with better performance deliver higher realizable pay to their CEOs than low-performing companies. The median CEO at high-performing companies has a three-year aggregate realizable long-term incentive value that is 150 percent larger than at low-performing companies—$2.3 million versus $0.9 million in 2008.
“As we move into 2010, the role of shareholder activists, forthcoming final SEC regulations and proposed federal legislation will keep the spotlight on executive pay-for-performance,” said Steve Van Putten, senior executive compensation consultant at Watson Wyatt. “As companies move beyond the financial crisis and start preparing in earnest for economic recovery, they will be challenged to develop incentive programs that continue to attract and retain top talent and motivate and reward superior performance, yet at the same time respond to external pressures,” he added.
Other findings from the survey include:
• The value of broad-based employee stock option grants declined by 17 percent in 2008. Realized gains from employee stock option exercises declined by an average 55 percent last year, from $54 million per company to $24 million.• The estimated in-the-money value of employee stock options outstanding declined by approximately $100 billion for the companies in the study.
• The value of broad-based employee stock option grants declined by 17 percent in 2008. Realized gains from employee stock option exercises declined by an average 55 percent last year, from $54 million per company to $24 million.
• The estimated in-the-money value of employee stock options outstanding declined by approximately $100 billion for the companies in the study.
Stephen Milleris an online editor/manager for SHRM.
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