May 16, 2008

Mercer Comp Study Shows Decline

Amid a slowing U.S. economy and weakening corporate performance, the most recent compensation survey, undertaken by Mercer, reveals that total direct compensation among CEOs at large companies is declining.

Mercer reasons that boards have heard the message that pay has to be linked to performance. That is the conclusion of Mercer’s study of U.S. CEO compensation trends, based on the latest proxy filings of 350 companies within the Fortune 1000.

On average, CEO total direct compensation declined among 350 companies analyzed by Mercer, with CEOs of the largest companies taking the sharpest reduction, a 15.8 percent cut.
Corporate performance declined in 2007 on average among the companies analyzed.
Reflecting performance, cash incentives declined markedly among CEOs of the largest and mid-size companies in the study.
Base salary increased 3.7 percent. That said, 42 percent of the companies did not increase their CEOs’ base salaries in 2007.
In 2007, performance-based long-term incentives became almost as popular as stock options – responding to shareholder demands that pay be linked to performance.

Mercer’s database of 350 companies consists of three size categories: top 50 with revenue of $40 billion or more, large companies with revenue of $7.4 billion or more, and mid-size companies with revenue of $1.2 billion or more. These categories reflect Mercer’s opinion that companies compare themselves to like-size organizations.

Selection was based on an industry mix which approximates the Fortune 1000.

Mercer analyzed median total direct compensation for CEOs, defined as base salary, short-term incentive compensation and expected value of long term incentives granted in the fiscal year covered by the proxy.

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