Executive Compensation: What Goes Up Hardly Comes Down

The WSJ has produced a study of executive compensation for 2008. The big news was that executive compensation had fallen.

The study notes that total compensation for CEOs (including salary, bonsues, the awarded value of stock, stock options and other long-term incentives), dropped 3.4% to a median of $7.6 million.  The study includes 200 large companies (revenues of at least $5 billion) but excludes those that have filed proxy statements since Oct. 1, 2008. In other words, most companies with fiscal years are not included.  The data also overstates the current value of these packages since many are based on the value of options/stock at the time of the award that have declined considerably.  The article points out a number of CEOs that have many many options that are now under water (3 million for Michael Eisner at Disney, for example).

Nonetheless, it is interesting to note that the Dow Jones Average on December 31, 2007 was 13,264.82.  The average a year later?  8776.39.  In other words, the market falls by 34% and CEO salary falls by 10% of that amount, or 3.4%.  The article provides some insight into how this happened.  Bonuses were down (by 10%, a measure that presumably has some element of performance attached) while salaries were up.  In other words, as performance based compensation slips, there is a rise in non-performance based compensation.  It more or less illustrates why in dismal years for shareholders there is not an equally dismal year for CEO compensation.