While CEOs have frequently come under fire for not acting in the interest of shareholders, this year’s study of top executive compensation by The Conference Board finds that CEOs of the largest companies actually have a substantial amount of “skin in the game.”
Other key findings of a report released today, which are part of a larger study by The Conference Board that will be released early in 2008, include:
- The highest median total compensation ($3.9 million) is recorded in Utilities, Food and Tobacco, and Insurance industries, with Construction a close fourth. Median CEO compensation was computed for 22 industry groupings. Total compensation is defined as the sum of annualized salary, bonus, non-equity incentive compensation, the reported grant date present value of options, the value of stock awards, the change in pension value, and all other compensation.
- While the highest median CEO total compensation is recorded in Utilities and Food and Tobacco industries and the median CEO compensation in the Insurance industry ranks third, the median CEO cash compensation (sum of annualized salary, bonus, and non-equity incentive compensation) is highest in the insurance industry ($1.6 million).
- Not surprisingly, larger companies (in terms of revenue) compensate their CEOs at a higher level (see Chart 2). But less obvious is the notably smaller portion of compensation that is delivered through salary for CEOs of larger companies (see Chart 3). The smallest (in terms of revenue) 10 percent of companies deliver 57 percent of their total compensation in salary and the largest 10 percent of companies (in terms of revenue) deliver only 12.45 percent as salary. Inversely, the fraction of compensation delivered in the form of stock and stock options (both forms of “at-risk” compensation) increases as the revenue of the company increases.
There are several likely reasons for this mix of compensation elements. The million dollar cap on corporate tax deductibility for elements of compensation not related to performance makes it relatively more costly to compensate executives in cash using traditional vehicles such as salary and bonuses above one million dollars.
“Small companies could also rely more heavily on salary because, in general, the impact of CEO leadership (new products, marketing or processes) may be more immediate and thus effectively rewarded using shorter-term compensation,” state the authors.