Proxies Show Leveling in Executive Compensation

April 10, 2003 ( - Companies are responding to the requests of investors and regulators and lowering the benchmarks by which they set executive compensation levels.

Chief Executive Officer (CEO) pay levels have experienced a moderation in 2003, as median base salary and cash compensation are up 6% and 10%, respectively, tempered by over a quarter of CEOs receiving no increase,

but still outpacing salary increases for most US workers. Annual bonuses are equally affected, up only 8%, and the median expected value of long-term incentives experienced a decrease, dropping 6%, according to a Towers Perrin study of 2003 proxy data and CEO pay levels at 75 companies.

The moderation in bonus levels comes as more CEOs received a bonus.   Only 18% of CEOs had to do without their bonus checks in 2003, compared to 24% in 2002.  Eight percent of those went without during both years.

However, holding steady was the number of stock options granted chief executives in 2003.    Even though the median number was flat year over year, their Black-Scholes values fell 10% due to declines in stock values.

The biggest factor in the leveling of executive compensation may be many companies now beginning to target a lower competitive posture, aiming to pay senior executives at the 50th to 65th percentile for executive pay in their market and industry categories, as opposed to the 75th percentile or higher.   “We believe the data suggest the first signs of an anticipated slowdown in executive pay,” said Gary Locke, leader of Towers Perrin’s Executive Compensation practice.

“It’s a moderation of the so-called Lake Wobegon effect, where every company’s board wants to consider their CEO to be above average. The changes we are seeing are substantive but tempered; it’s not a sea change. But it’s not business as usual, either.”