Watson Finds Most Firms not Boosting Terminating CEO Payments

March 20, 2008 (PLANSPONSOR.com) - The vast majority of U.S. companies paid CEOs who departed in 2007 the same compensation disclosed in their 2007 proxy disclosures and provided no additional ad hoc termination payments, according to a survey by Watson Wyatt Worldwide.

In a press release Watson Wyatt said it found 54 of 70 companies (77%) provided no additional compensation at termination to that disclosed to shareholders in the 2007 proxy.  Disclosure of potential termination payments was required for the first time by the Securities and Exchange Commission (SEC) in 2007 proxy filings. 

The remaining 23% of companies increased compensation for their CEOs at termination by a median value of about $600,000 – a difference between 8-K filings and what was reported in their proxy of 224% on average. In some cases the increase included additional quid pro quos such as general release from claims, transition services provided as a non-CEO, additional non-compete time, or an agreement to provide future consulting services, the release said.

Watson Wyatt found that smaller companies ($1.4 billion average revenue) were more likely than larger firms to provide exit pay above what was reported in their proxy.

The analysis was conducted by comparing 2007 proxy disclosures with 8-K filings for CEOs departing between April and December 2007. 

In a separate Watson Wyatt analysis of proxy statements and change-in-beneficial-ownership disclosures it found the median in-the-money value of unexercised stock options for CEOs declined 13% last year, from $19.9 million in 2006 to $17.2 million.

The analysis of disclosures from 94 large U.S. companies with fiscal years ending in December 2007 and January 2008 found the median in-the-money value of unexercised stock options for CEOs at high-performing companies increased 87% from $22.5 million in 2006 to $42 million last year, while CEOs at low-performing companies saw a 70% decrease from $15.6 million in 2006 to $4.6 million last year.