Executive Compensation Down 8% in 2003

April 12, 2004 (PLANSPONSOR.com) - As executive compensation was elevated higher due to strong growth in the value of restricted stock and long-term incentives, it was simultaneously being depressed by lowered stock option values.

Executives saw an 8% dip in their total compensation levels in 2003, to an aggregate of $9.1 million. Contributing to this figure was a 23% hike in cash and restricted stock and a 38% decline in the average value of stock options, according to an analysis of 2004 proxies by compensation consultants Pearl Meyer & Partners.

Breaking down the total, the value of options came in at $3.2 million in 2003, and cash and non-option compensation averaged $5.9 million. This figure was comprised of $1 million in base salary, $2 million in bonus, and $2.5 million in restricted stock and long-term incentives, with the remainder in prerequisites or other compensation. Overall, nearly two-thirds of the companies paid their CEOs more cash in 2003 than a year earlier, while less than 20% provided higher option grant value.

Pearl Meyer & Partners attributed the unusual pay picture to steep growth in the value of restricted stock and long-term incentives, as well as sharply lower CEO option grant values, due to the market slump in early 2003 and the granting of fewer options, according to the firm. The shift in pay slashed the proportion of total CEO pay delivered in stock options to a seven-year low of 36% from 52% a year earlier.

“We’re looking at a major overhaul of executive pay programs,” Steven Hall, President of Pearl Meyer & Partners said in a news release. “Companies are acting on investor demands that pay programs be less dependent on short-term stock price movement and more directly related to long-term financial performance as well as real growth in shareholder value.”

Additionally, Pearl Meyer & Partners found companies are redesigning their executive programs. More than one-third of the companies studied are making changes that include adoption of share ownership guidelines, use of performance-based equity, elimination of reloads, and more annual incentive opportunities.

“Going forward, CEOs will be required to meet stiffer performance demands to earn their pay,” said Hall. “There will be far less reliance on options and giveaways.”

More information is available at Pearl Meyer & Partners Web site www.execpay.com .

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