The Advisors' Blog

– Steven Hall, Steven Hall & Partners

According to a study of 100 early filers with revenues greater than $1 billion that we recently completed, average CEO total compensation increased +39% in 2010 while average total shareholder return equaled +25% and average net income increased +30%.

There are three factors contributing to the gains. First, base salaries that were reduced or held constant in 2009 were increased in 2010. Second, cash bonuses increased +43% as a result of stronger performance. Finally, we saw a +41% increase in the value of equity compensation granted in 2010. Although executives will not realize cash gains on these awards until they are vested, they nevertheless provide both retention and a link between CEO pay and performance. Nearly 80% of the equity awarded in 2010 will only provide value if the stock price appreciates or certain performance goals are met.

The study also confirms that profitability continues to be the key determinant of compensation. In instances where profitability increased in 2010, incentive cash compensation increased +53% over 2009 values, versus a -9% decrease among companies with lower profits. Furthermore, among the eight unprofitable companies in the study group, CEO total compensation decreased on average by -14%, while increasing +44% for CEOs of profitable companies.

Pay Mix

Equity continues to serve as the primary compensation vehicle for CEOs. For the 100 CEOs in the study group, equity compensation comprised 43% of total compensation, bonuses and other cash-based incentives represented 35% and base salaries just 22%.

Trends in Pay Elements

Comparing 2010 compensation to that in 2009 for all 100 CEOs in the study group, the study finds that:

– Salaries increased +11%
– Cash incentive compensation increased +43%
– Equity compensation increased +41%
– Total compensation increased +39%
– Revenues were up by +15%
– Net Income was up by +30%
– Total shareholder return was +25%