Washington, D.C. — April 5
Chief executive officers at the nation’s largest companies saw their annual bonuses increase 13 percent and the value of their equity-based compensation holdings grow nearly 50 percent last year, according to an analysis of proxy statements conducted by Watson Wyatt Worldwide, a global consulting firm.
“Corporate America enjoyed a banner financial year in 2006,” said Steve Van Putten, Watson Wyatt senior executive compensation consultant. “CEO pay moved in step with corporate earnings and stock prices, reflecting the trend toward performance-based compensation.”
According to the analysis, median annual bonuses for CEOs increased 13 percent to $2.2 million last year.
At these same companies, the median growth in earnings per share was 14 percent. Earnings per share is a commonly employed performance metric in annual incentive programs.
Base salaries also grew by 4 percent to a median $1.1 million.
The proxy analysis is based on 92 large companies whose CEOs remained in their positions in 2005 and 2006.
The analysis also found that the median value of CEOs’ equity compensation, which includes in-the-money stock options and restricted stock awards, increased 48 percent last year to $30.2 million.
This was fueled in part by the 18 percent increase in total returns to shareholders (TRS) last year.
For CEOs at high-performing companies (those with a median 30 percent TRS), equity compensation nearly doubled last year to $31.3 million, while CEOs at low-performing companies (7 percent TRS) saw their equity compensation increase by 13 percent to $25.3 million.
“The correlation between realizable pay — the value of outstanding long-term incentives granted to executives over a specific time frame — and company performance remains as strong as ever,” said Ira Kay, Watson Wyatt global director of compensation consulting. “It is also a good reminder that, because stock options are highly leveraged, even a small increase in stock price appreciation can lead to an increase in value for other CEOs.”
