Although they may not be among the tens of thousands who lost their jobs in 2001, the highest paid executives in America saw an almost 5 pecent decrease in their total cash compensation, according to the new Executive Compensation Index released by the Economic Research Institute (ERI) and CareerJournal.com recently.
The Index tracks the total cash compensation (salary bonus) for the highest-paid executives at a cross section of 45 major U.S. businesses. The index (1997 = 100) stood at 156.6 on January 1, 2002 compared to 164.1 for January 1, 2001, for a 4.6% decrease.
The Index results are compiled by ERI/CareerJournal.com each quarter and capture total cash compensation reported in the previous 12 month survey period. Fourth quarter 2001 data becomes available in the 1st quarter of 2002 and will be included in the April 2002 index.
From 1997 to 1999, executive compensation jumped nearly 20 percent each year. Although not quite as stellar, compensation rose a hefty 15.7 percent from 1999 to 2000. However, during the most recent survey period - corporate reports filed in 2001 - executive compensation decreased by an average of 4.6 percent.
ìOverall executive pay is slowing because of the downturn in the economy,î says Dr. David Thomsen, director, ERI Economic Research Institute. ìExecutives who were given stock options as bonuses are being burned by the market.î
ìTop executives are starting to demand more tangible rewards to offset the risk of options,î says Tony Lee, general manager and editor in chief of CareerJournal.com. ìMore cash, bigger bonuses, and other material perks are the most popular.î
The study also examined whether or not executive compensation is increasing or decreasing faster than company annual revenues. It found that executive salaries are increasing at a slightly lower rate than revenue growth. This measurement can be used to determine the executiveís value to the stockholders.
While the economy and stock markets soared over the past four years, executive compensation rose as well. Now, the longest economic expansion in U.S. history has ground to a halt. In some instances, top executives need to meet aggressive performance goals set by compensation committees in order to land bonuses and other financial incentives. However, few companies are eager to lower executive paychecks even in a poor economy.
ìThere is still a tight talent market for top executives,î says Lee. ìFor example, troubled companies are looking for saviours to help bail them out.î
The highest paid executive among the 45 companies reporting during the survey period was John F. Welch Jr. at General Electric, with annual cash compensation of $16,700,000. Welchís percentage increase was 9.2% more than the percentage increase in company revenues.
The entire Economic Research Institute (ERI)/CareerJournal.com Executive Cash Compensation Index and Report can be found on ERIís site at:
www.erieri.com
Highest paid executives take a pay cut
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