Human Capital & Careers

More Restricted Stock for More CEOs

Salary and stock options are playing much smaller roles in the compensation of chief executives.
Stephen TaubMay 14, 2004

Restricted stock is playing a major role in CEO compensation, two recent studies have found.

An analysis by the Corporate Library, a governance group, found that the median total compensation of Standard & Poor’s 500 chief executive officers rose by more than 27 percent last year, to $4.6 million, according to Reuters. That followed an 11.5 percent increase a year earlier.

The compensation figures, drawn from data for 328 CEOs, include base salary, bonus, options proceeds, restricted stock awards, and long-term incentive plans.

The 2003 median value of their restricted-stock awards was nearly $2 million, up from $1.46 million in 2002, Reuters pointed out. Last year, 116 CEOs received restricted stock, up from 99 in 2002.

By comparison, noted the wire service, the median base salary in 2003 was $986,250, up just 3.7 percent from 2002.

Another study, by compensation consultants Pearl Meyer & Partners, concluded that nearly all of 20 leading industries provided their chief executive officers with either double-digit pay increases or double-digit pay cuts in 2003, primarily depending on the industry’s reliance on stock options.

Pearl Meyer based its study on 180 U.S. companies with average revenues of $16 billion.

Overall, average pay for the chief executives declined 8 percent, to $9.1 million. However, in the nine industries where CEO pay declined more than 10 percent, the average value of stock-option awards plunged 46 percent; in the seven industries where pay rose more than 10 percent, option values declined only 5 percent.

Increases in grants of restricted stock, added Pearl Meyer, wound up playing a pivotal role at the companies it examined.

The technology sector, historically the heaviest user of stock options, reported one of the steepest drops in CEO pay — down 36 percent to $10.6 million, according to Pearl Meyer. However, of the 23 companies in the sector, 15 did not award any restricted stock or other full-value grants to their CEOs, while 20 of the 23 granted options.

At the other extreme, diversified financial and brokerage companies enjoyed average CEO compensation that surged 78 percent in 2003, to $23.7 million. Five of the nine financial companies provided a higher proportion of pay in full-value stock than options. Citigroup, Capital One, and Charles Schwab more than tripled their chief executive’s compensation, and five others more than doubled their CEO’s pay.

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