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CEO Pay Falls 6.8% in First Drop Since 2002. Bonuses Cut by 20.6%.
New Equilar study tracks S&P 500 CEO pay trends
For Release: April 7, 2009
Redwood Shores, Calif. - According to a new study published today by Equilar, a leading information services firm which tracks executive compensation, median CEO pay fell by 6.8% from 2007 to 2008. Declines in overall compensation levels were principally driven by a steep drop in median cash bonus payouts, which fell by 20.6% over the same period.
Equilar's study, one of the most comprehensive to date on 2008 pay trends, includes data for 208 S&P 500 CEOs at companies with fiscal years ending between June 2008 and January 2009. To be included in the study, a CEO must have been in place for at least two full fiscal years.
Although not directly comparable because of changes in the S&P 500 index, a similar study conducted by Equilar last year on 233 S&P 500 CEOs, found that median compensation increased by 1.3% from 2006 to 2007.
The last significant drop in CEO compensation levels occurred between 2001 and 2002, when median S&P 500 CEO pay fell by 9.9%. Between 2002 and 2003, CEO pay was essentially flat (down 0.2%), and in each subsequent year until now, median compensation rose.
In 2008, S&P 500 CEOs received a median total pay package of $8,446,935. The year before, the median CEO earned $9,061,057. Additional key findings from Equilar's study, including a special section on financial services firms, are presented below:
Total Compensation
From 2007 to 2008, median total compensation for S&P 500 CEOs decreased by 6.8%, falling to $8,446,935. Aggregate compensation, the sum of all compensation for all CEOs, also fell, dropping by 8.9%.
Equilar defines total compensation as the sum of base salary, cash bonus payouts, the grant date value of stock awards, the grant date value of option awards and other compensation like benefits and perquisites. Bonuses include both discretionary and performance-based payouts. Stock and option awards include grants with both service-based and performance-based vesting requirements.
Base Salary
From 2007 to 2008, the median base salary for S&P 500 CEOs increased by 5.7%, rising from a median of $1,000,000 to $1,057,118. Crossing the $1 million threshold is significant because compensation in excess of this amount is not tax deductible pursuant to IRS section 162(M) unless it is performance-based.
Cash Bonus Payouts
In 2008, S&P 500 CEOs received a median cash bonus of $1,473,520, down 20.6% from a median payout of $1,855,989 in 2007. The prevalence of CEOs receiving a bonus also dropped from 92.3% in 2007 to 85.6% in 2008.
Aggregate bonus compensation, the sum of all bonuses for all CEOs, dropped by 19.6%, falling from approximately $579.0 million to $465.2 million.
Equilar defines cash bonus payouts as the sum of any discretionary bonuses, annual incentive plan payouts and long-term incentive plan payouts paid in cash.
Annual incentive plan payouts – which are most directly linked to corporate performance during the year and typically account for the greatest share of bonus compensation – fell by 19.6% from 2007 to 2008. The median annual incentive plan payout in 2008 was $1,205,931.
Stock Awards
In 2008, the median value of CEO stock awards at S&P 500 companies inched upward by 1.4%, rising from a median of $2,305,200 to a median of $2,336,327. The prevalence of CEOs receiving stock grants was nearly flat, but down slightly, falling from 77.4% in 2007 to 76.4% in 2008.
Readers should note that Equilar values stock awards on their original grant date, not by their current value. For many CEOs, the current value of their equity awards is significantly less than on its original grant date.
Option Awards
From 2007 to 2008, the value of S&P 500 CEO stock option grants rose by 3.6% to a median of $2,400,037. The median option grant in 2007 was valued at $2,316,099. The prevalence of CEOs receiving stock options was up by a small degree from 71.2% in 2007 to 73.6% in 2008.
Again, readers should note that Equilar values option awards on their original grant date, not by their current value. Equilar uses its own standard Black-Scholes methodology to value option grants.
Other Compensation
The median value of other compensation for CEOs at S&P 500 companies was $198,446 in 2008, a 2.7% decline from a median of $203,862 in 2007. Other compensation includes executive perquisites like travel on corporate jets, relocation expenses, financial planning assistance and personal and home security, among others.
CEO Pay at Financial Services Firms Plummets 38.3%
For S&P 500 companies in the financial services sector, median CEO compensation fell by 38.3% from 2007 to 2008, tumbling from a median of $10,488,412 to a median of $6,473,194. Median bonus payouts fell 100% from $2,623,282 in 2007 to zero in 2008. (A median of zero reflects the fact that less than 50.0% of CEOs received a bonus in 2008.)
Learn more about Equilar, Inc.
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Scott Fingerhut
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