Benefits April 12, 2006

Study Finds Link Between CEO Pay and Tech Co. Performance

April 12, 2006 (PLANSPONSOR.com) - DolmatConnell & Partners, Inc has released a new study that shows CEO compensation varied significantly by firm performance in 2005 among technology industry firms.
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According to a company news release, the study found that CEOs of high performing firms received a median cash compensation increase of 21.3% (including base salary and bonus), while delivering a 35.9% median shareholder return. CEOs of low performing firms received a median pay decrease of 14.7% (including base salary and bonus), while delivering a -21.7% median shareholder return.

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Overall in the industry, CEO cash compensation was up 3.7% to $1.7 million, the release said.

On the other hand, the study found that companies are moving away from stock options, which tie compensation to performance, and towards time-based restricted stock, which does not link value to results. Fifty-nine percent of tech firm CEOs received restricted stock in 2005 compared to 45% in 2004. Jack Dolmat-Connell, president of DolmatConnell & Partners, said in the release that this shows “some companies are not adhering to ‘pay for performance’ best practices and are not holding their executives accountable when it comes to shareholder value.”

Other study findings included:

  • Base salaries were down 4.3% to $759,000 for all firms, up 11.7% for high performing firms, and down 1.1% for low performing firms.
  • Bonuses were down 5.6% to $988,000 for all firms, up 22.8% for high performing firms, and down 29.0% for low performing firms.
  • Total long-term incentives (stock options, restricted stock, performance-based LTIP) were down 2.3% to $3 million for all firms, up 30.3% for high performing firms, and up 5.1% for low performing firms.
  • Total direct compensation (cash and LTI) was up 20.5% to $5.1 million for all firms, up 15.1% for high performing firms, and up 9.0% for low performing firms.
  • Stock option value was down 14.0% to $1.5 million. The number of stock options granted fell 26.4% to 95,000.
  • Performance-based LTIP(average) was up 28.8% to $1.5 million.

The study included 44 technology companies with November or December 2005 Fiscal Year ends with tenured CEOs (at least 2 years in CEO role). For more information, contact Jack Dolmat-Connell at jackdc@dolmatconnell.com or visit www.dolmatconnell.com .

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