CEOs feeling poorer

Stock options tanked, and shareholders rebelled against bonuses

The Associated PressMay 1, 2009 

  • The Associated Press compensation analysis looks at Standard & Poor's 500 companies that filed proxy statements with the Securities and Exchange Commission between Jan. 1 and April 20. The total pay figures for 2008 are rounded and are based on the AP's compensation formula, which adds up salary, perks, bonuses, preferential interest rates on pay set aside for later, and company estimates for the value of stock options and stock awards on the day they were granted last year.

— CEOs are taking a hit from the recession -- less total compensation, smaller bonuses, nearly worthless stock options -- but their companies are already making adjustments that could mean fatter paychecks in the future.

An Associated Press analysis shows the median pay package for CEOs of companies in the Standard & Poor 500 index fell 7 percent to $7.6million in 2008.

And the potential hit to their pocketbooks could be even larger if stock prices don't rebound. One clue: 90 percent of the $1.2 billion in CEO stock options granted last year are "under water," meaning the current stock price is too low to yield a profit, the AP analysis shows.

Boards already are trying to cushion the blow.

The AP found that some companies have changed the rules to make it easier for executives to qualify for bonuses. Others are doling out more stock options, which give executives the right to buy shares in the future at prices locked in today.

Other findings in the AP's analysis:

Four of every five CEOs took home a cash bonus, despite the fact that the stock prices of the companies in the survey fell by an average of 36 percent and profits fell 31percent.

The median payout in cash for salary and bonuses fell 20 percent from a year earlier to $2.4 million. But that's still 48times what the average U.S. worker makes, based on the most recent government figures.

Of the 10 CEOs who took the biggest pay cuts last year, four were heads of financial services companies. Overall, the heads of companies that develop and process raw materials -- including supplies for construction, steel and glass, and paper products -- took the biggest hit. That group's median compensation shriveled 26 percent to about $6.3 million.

Since the economic meltdown, pressure has grown from shareholders, Congress and President Barack Obama for boards of directors to rein in executive pay. But even with all that scrutiny, experts on CEO compensation say it's too soon to call the 2008 decline in pay the start of a trend.

"I wouldn't yet say this is a watershed moment for executive compensation. This is a watershed opportunity," said Jesse Brill of CompensationStandards.com and an expert on CEO pay. "I am fearful too many boards won't take a hard stance to enforce significant change."

Stock grants soar

There are already examples of corporate boards setting CEOs up for a potential windfall. Many made large stock grants in the first few months of 2009, when stock indexes dipped to levels not seen in more than a decade. The S&P 500 has rebounded more than 30 percent from its early March low, though it's off 44 percent from its October 2007 peak. Given the timing of the early 2009 stock awards, a sustained stock market recovery would supercharge the profits when these options are exercised.

SunTrust Banks illustrates how the rules of the game are changing. Its board voted in February to grant CEO James Wells options on 1.1 million shares, more than four times the number he received in 2008.

That unusually big award became a target of SunTrust shareholder groups, and in April the company said Wells had declined the full amount and would accept only half, 550,000 options. He will have to meet performance goals to earn slightly more than half of those options.

The exercise price on the 2009 grants is about $9 a share, reflecting the bank's stock price in February when it was close to an 18-year low. A year earlier his options had an exercise price close to $65, where the shares were then trading. SunTrust shares now are at $15, meaning that while Wells' 2008 options are deep under water, his 2009 options already are in the money to the tune of about $3 million.

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