Mercer Finds Decline in CEO Comp

May 15, 2008 ( - Mercer's study of U.S. CEO compensation trends found that CEO total direct compensation among many large companies is declining.

For CEOs of the top 50 companies analyzed by Mercer, median total direct compensation for 2007 was just under $14 million – a 15.8% reduction from the prior year, the company said in a news release. Median total direct compensation for CEOs is defined as base salary, short-term incentive compensation, and expected value of long term incentives granted in the fiscal year covered by the company’s proxy.

CEOs of large companies received median total direct compensation of about $9.4 million – essentially unchanged from the prior year, while CEOs of mid-size companies analyzed by Mercer had median total direct compensation of $4.7 million – a modest reduction of 4.6% from the prior year, the release said. In the case of largest companies, the decline in total direct compensation was driven by a sharp decline in long-term incentive grant values, down 18.9%.

Year-over-year changes in the components of pay varied among the three company categories, Mercer said. Base salary constitutes a relatively small percentage of CEO compensation (19% on average), and only 58% of organizations increased base salary – by 3.9% for CEOs in the top 50 companies, by 4.2% for large company CEOs, and by 3% for mid-size company CEOs.

The study found that overall, cash compensation tracked performance, and annual cash incentives declined significantly in the top 50 companies (13.5%) and mid-size firms (16.9%) over the prior year. Large company payouts were slightly higher (1.6%) than in the prior year.

Long-term incentives – primarily in the form of equity – continue to be at the center of CEO compensation, according to the Mercer analysis. Long-term incentives make up just under two-thirds of the total CEO pay package, and cash and equity awards based on achieving specified performance goals have become almost as common as stock options.

In addition, Mercer found there has not been the pullback in company-funded perquisites such as personal aircraft use, club dues, and personal financial advice that some might have expected, perhaps because these constitute a small percentage of total direct compensation. Among the 350 companies whose proxies Mercer analyzed, 87% of the companies provided at least one type of perquisite, and the median value was $81,000.

Mercer’s study of U.S. CEO compensation trends is based on analysis of the latest proxy filings of 350 companies within the Fortune 1000. Mercer’s database of companies consists of three size categories – top 50 with revenue of $40 billion or more, large with revenue of $7.4 billion or more, and mid-size with revenue of $1.2 billion or more.