Survey: Size Matters in Executive Compensation

November 3, 2006 ( - There is an easy answer for a chief executive office looking for a larger haul when it comes to total annual compensation: step up to a larger company.

That was the bottom line of a new analysis of CEO pay byexecutive compensation consultant Steven Hall & Partners, which found that 2005 median CEO pay ranged from $3.2 million at the smallest companies to $16.8 million at the largest companies.

According to a news release, the study of the largest 1,000 US firms found an overall median chief executive pay of $5 million for 2005.

Examining the company by annual revenue size, the study found median CEO pay of

  • $3.2 million for companies with revenues under $2.5 billion;
  • $4.5 million for companies with revenues between $2.5 billion and $5 billion;
  • $6.6 million for companies with revenues between $5 billion and $20 billion;
  • $14 million for companies with revenues between $20 and $50 billion; and
  • $16.8 million for companies with revenues above $50 billion.

The study also showed that company size makes a difference in pay structure, according to the news release. The percentage of compensation in equity (performance / restricted stock and options) and other forms of long-term incentives is highest among the largest companies. Total long-term pay reached 72% of total compensation for CEOs at companies with revenues over $50 billion, compared to 50% at companies with revenues below $2.5 billion, the study found.

“The higher the pay, the higher the risk,” said Pearl Meyer of Steven Hall & Partners, in the news release. “As a group, larger enterprises are somewhat constrained as to salary and cash bonus, while they can use equity and other long-term incentives leveraged on future corporate performance and shareholder value as their principal reward vehicle.”

Median salaries and median bonuses at the largest companies did not increase from 2004 to 2005, and varied relatively little compared to the same components at smaller companies. For example, median salaries ranged from $731,000 at the smallest companies to $1.5 million at the largest. However, the median value of stock and other long-term incentives reached $12 million at the largest companies, or 7.5 times the median value of $1.6 million at the smallest companies.

While 31% of the top 1,000 companies have turned away from options (See Stock Option Use Continues Decline ), the majority still use them, according to the study. Although the median value of option awards fell 5.3% to $1.2 million, 69% of companies continue to rely on them as their principal long-term incentive vehicle.

Contact Nora McCord at Steven Hall & Partners (212-488-5400, for additional study information.