December 19, 2008
Survey: Executive Pay in the New Economy
– Dave Swinford, Pearl Meyer & Partners
Our firm recently surveyed over 400 board members, executives and human resources professionals in regard to what modifications they’re contemplating to executive pay programs in response to recent market turmoil. The results of the survey – entitled “Executive Pay in the New Economy” Quick Poll – offer important insights into companies ‘ year-end pay decisions, the awards provided for performance in 2008 – as well as a useful preview of compensation planning for 2009.
Overall, executive pay appears certain to face significant upheaval in 2009. Nearly nearly 90% of survey respondents said the economic downturn will affect their decisions about executive compensation during the next six months, with nearly one in five predicting the impact will be “significant.” They said annual bonus and stock-based awards for executives will decline , while salary growth slows. Nearly 18% said their companies are “strongly considering” a salary freeze, while 36% might consider paying a year-end bonus below formula. Additionally, about 1 in 5 respondents said their companies’ severance or change-in-control arrangements will be revised in the next 12 months.
Since the survey was completed, the economy has officially been declared a recession and even more leading companies have sought governance assistance. There seems no question that companies will need to significantly increase the extent to which executive compensation, particularly variable components such as annual bonus awards and stock grants, are put at real risk when performance stumbles. Whether the program changes they make will end up satisfying shareholders who are feeling the pain in their own paychecks, and portfolios, is less certain.