So, CEO pay has rebounded after a year of decline followed by a year of stagnation. But with median increases in remuneration of the order of 35 to 40%, the real question is: were the increases justified by performance? In order to determine this – and take the long view – I looked at pay movements and stock price performance over the last three years.
The decline in the economy in 2008 and 2009 outstripped the decline in CEO pay, by considerable amounts. In 2008, for example, the Russell 3000 Index was down by 37.3%; total realized pay (this includes salary, bonus and realized equity pay such as stock option profits) for CEOs fell by 6.34%.
But in 2010, when stock prices had begun to recover, the increase in CEO pay has outstripped the rise in share values. The Russell 3000 was up by 16.93%, but CEO pay went up by 27.19%. This differential, which always seems in favor of CEO pay, should give shareholders – whose investments are not subject to the same economic cushion – pause for thought.
OK, so let\’s think about it then.
However, it is profits made on the exercise of stock options that continue to drive today\’s largest pay packages and largest increases as grants made nine and 10 years ago (when options were much more popular) continue to mature. Eight of the top 10 highest paid CEOs made the list because of option profits.
So there\’s your problem then. You\’re measuring executive compensation over a three year performance period at the same time as you say that the major determinant is share options over an 8-10 year performance period.
Now go away and do your research properly you ghastly little boy.