A Wall Street Journal / Hay Group Study has revealed that public companies gave modest CEO pay raises in 2011 although profitability remained strong. In 2010, CEOs saw pay increases of 11 percent but direct compensation grew just 2.8 percent in 2011. For the year, base salaries rose by 1.5 percent while annual incentives remained flat. Long-term incentives continued the growth begun in 2010 increasing by 5.5 percent. Company performance was also mixed. Of the companies participating in the survey, the median net income increase was 13 percent over 2011 with a 3 percent total shareholder return.
“Say-on-pay and the increasing power wielded by shareholders have had a significant impact on how companies approach and communicate their executive pay plans,” said Irv Becker, National Practice Leader of the U.S. Executive Compensation Practice at Hay Group. “Our study showed that companies proceeded very carefully on both pay levels and pay design in 2011. Directors are taking proactive steps to ensure that their executive pay plans are aligned with shareholders’ desired outcomes.”
Executives at companies barely staying afloat financially in 2011 actually saw cuts to bonus payouts. In fact, 75 percent of companies with net income changes less than 2 percent reduce CEO bonuses a median of 7 percent.
“Many of the low-market equity grants awarded in the first quarter of 2009 vested in 2011, after gaining substantial value in the prior two years,” said David Wise, Senior Principal in the U.S. Executive Compensation Practice at Hay Group. “This resulted in a significant increase in realized pay for executives in 2011. In hindsight, it’s likely that some boards overreacted to the market crash in the second half of 2008 by providing their executives with too much equity at depressed stock prices.”