Pending Options Expensing Affects CEO Comp Practices

October 20, 2004 (PLANSPONSOR.com) - As should be expected with the Financial Accounting Standards Board (FASB) about to implement stock option expensing rules, long-term compensation incentives are down for 2004.

A study by CFO.com on compensation reveals that not only are chief financial officers feeling the effects of the pending regulation; employees across the board are receiving fewer stock options. Overall compensation and bonuses are up from previous years, but stock option awards for all groups have fallen, the study asserts.

The trend away from stock option compensation awards can be seen most clearly when looking at the higher levels of the corporate ladder. Of the 20 best-paid CFOs, 25% made the list without exercising any options.

A switch to other forms of compensation, such as restricted stock, can be seen clearly in this group as well. Of the top 20, nine received what CFO.com calls ‘substantial’ restricted stock awards. The top restricted stock receiver was John Hancock’s Thomas Molony, who garnered more than $5 million in such awards.

The survey also shows what CFO.com calls ‘slight’ increases in long-term incentive awards for other higher-level finance executives such as audit executives and risk management officers. The study attributes this to increasing responsibilities following the Sarbanes-Oxley Act.

“Long-term incentive values have dropped in every study we’ve done,” says Diane Doubleday, a principal at Mercer Human Resource Consulting, which conducted the latest edition of CFO’s biennial compensation survey.

The 2004CFO compensation surveyis based on data from Mercer Human Resource Consulting’s 2004 Finance, Accounting & Legal Compensation Survey. Due to a methodological change, the CFO survey cannot be compared to past results.

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