Study: CEO Pay Tracks Closely with Median Shareholder Returns

July 11, 2006 ( - CEO pay increases have been closely tracking shareholder returns over the last decade, despite recent claims that executive compensation ballooned far out of line with returns, a recent study found.

A study by Washington, D.C.-based Business Roundtable found that the median total compensation of CEOs of 350 large companies increased 9.6% per year over a 10-year period from 1995 to 2005, which closely trails the 9.9% median annual shareholder returns over the same period and the 8.8% annual growth in median total market capitalization.

Some of the survey’s other findings include:

  • The median salaries of CEOs climbed at a compound annual growth rate of 3% ($729,000 to $975,000); however, median company revenues increased at the greater rate of 4.2%, from $5.1 billion to $7.6 billion.
  • The compound annual rate of growth in median net income of a company was 8.5%, which exceeds the growth in CEO bonuses of 7.4%.

“The close alignment of CEO pay and performance reflected in Mercer’s survey numbers over the last decade indicates that most organizations have embraced responsible executive compensation,” said Peter Chingos, a senior compensation consultant with Mercer Human Resources Consulting, from which the data was collected.

The Business Roundtable research findings come at a time when CEOs and their companies are being disparaged by shareholders and other groups for how they compensate their top executives.

In April, however, one study found that even though median CEO income is still rising, the pace has slowed. The median pay for top executives rose 11.3% in 2005 and wages for CEOs at the largest firms climbed 3.7% (See CEO Pay Climbing At A Slower Pace ).

Another study in April by Pearl Meyer & Partners noted that CEO compensation has been moving in line with company performance in 2005, with CEO pay rising 10% to a median of $8.4 million for that year. The study conducted for the New York Times also found that among the 200 companies studied, executive pay saw a 15% increase in net income and a 6% rise in total shareholder return (See CEO Pay More in Sync with Co. Performance ).

Frederic Cook conducted the research for Business Roundtable, using the Mercer Human Resources Consulting database on CEO compensation.

To access the full report, go here .