Investment Banker Named to Head SEC

As CFO.com reported yesterday (Salaries Down, Disgruntlement Up"), the consulting firm said the string of modest pay hikes is contributing to low employee morale and, more important, may be undermining the loyalty of many companies' most-valuable employees.

Meanwhile, Buck Consultants concluded in its survey of U.S. employers that the average 2003 salary increase is budgeted at 4 percent, up slightly from 3.9 percent in 2002.

In the Deloitte survey, 20 percent of respondents said they are eliminating bonuses for 2002 for the second consecutive year. Another 25 percent are giving bonuses that are 50 percent or less than what employees received during better economic times.

In the Buck survey, one-third of the participants paid bonuses at below-target levels (the median budget payout among respondents was 9 percent, compared with budgeted levels of 11 percent), and 20 percent made no bonus payouts at all—more than four times the percentage of nonbonus-payers in 2001.

At the same time, employee out-of-pocket costs for health-care benefits have been increasing as fast as or faster than raises at 76 percent of those companies surveyed, according to Deloitte.

"The biggest danger from continued low compensation is the negative impact it has on a company's best performers," said David Glueck, a director in Deloitte & Touche's Performance Management and Compensation Practice, in a statement. "Inadequately rewarding top employees undermines their incentive to perform at their peak, so productivity is almost certainly falling. And, when the economy picks up, they are much more likely to leave."

In fact, 75 percent of the companies surveyed by Deloitte concede that the biggest problem stemming from their restrained raises is an inability to sufficiently recognize top performers versus average or poor performers. And 48 percent acknowledge that low employee morale is another problem from low pay increases.

Buck found that the use of company stock and stock options as compensation continued to climb in 2002. In fact, nearly 21 percent of companies with an equity compensation plan reported that they lowered the criteria for participation in the past three years.

"Employers are discriminating more when determining which employees are really making a difference and need to be recognized and rewarded for their contributions," said Antoinette Petrucci, a Buck principal.

For example, among Fortune 1,000 companies, 69 percent offered hiring bonuses in 2002, compared with 78 percent the prior year. However, the average hiring bonus for executives in 2002 was $20,000, compared with $15,000 in 2001.

Short Take
Former Verizon Communications chief financial officer Frederic Salerno has been named chairman of Lynch Interactive Corp., replacing Mario Gabelli.

Gabelli was named vice chairman and will remain as CEO of Lynch Interactive, a provider of wireless and wireline communications.

Gabelli, a legendary investor, had been Lynch's chairman since 1986. He is also the chairman and chief executive of investment fund Gabelli Asset Management Inc.

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