April 13, 2009
Executive Compensation: What to Watch in 2009
– Broc Romanek, CompensationStandards.com
Recently, Moody’s issued a report entitled “Executive Compensation: What to Watch in 2009.” The report is not earth-shattering and finds the following:
– Pay-related changes will put new incentives in place for management and affect employee recruitment and retention efforts that could have significant future implications for bondholders.
– Analysts expect pay-related scrutiny to be focused most heavily on firms most closely associated with the credit crisis, including those receiving government assistance, those who have exhibited poor pay practices in prior years, or both.
– Expected key compensation changes include: a reduction or elimination of 2008 bonuses; changes to performance targets and metrics used in both short and long-term incentive plans; modifications to equity-based incentive plans; and other changes resulting primarily from shareholder pressure.
– Given the focus on pay, the pressures on various pay elements – in particular on variable compensation, which represents roughly 85% of typical CEO pay – and the reduced likelihood of near-term stock market recovery, we expect median CEO total pay to decline for the 2008 fiscal year and possibly again in 2009.
– There are both benefits and potential risks stemming from the pay changes, including those applicable to TARP firms under the Stimulus Act; potential credit implications are unknown at this time since pay is very much contextual and must be analyzed on a case-by-case basis.
Compensation Arrangements in a Down Market
We have posted the transcript from our recent webcast: “Compensation Arrangements in a Down Market.”