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CEO pay up again
Average executive compensation rose by 16% last year, says new study.
April 6, 2004: 4:27 PM EDT

NEW YORK (Reuters) - The rebound in U.S. corporate profits and return of the stock-market bull last year stoked a 16 percent raise in 2003 cash pay for America's top executives, most of the gain coming from a 20 percent rise in CEO bonuses.

Median cash pay for chief executives -- base salary and bonus -- grew to $2,029,500 from $1,750,000 in 2002, up 16 percent, according to a study of 345 of the Standard & Poor's 500 companies conducted by Equilar for Reuters.

Bonuses overall leaped 20.4 percent to $1,064,099 from $883,944, and six out of 10 CEOs enjoyed lump sums last year. The median base salary increased to $950,000, up 3.1 percent from 2002.

However, long-term pay fell because U.S. corporations are replacing stock options with other forms of equity-based compensation, and not on a "dollar-for-dollar" basis.

With this segment declining, the overall value of all the different types of CEO pay last year slipped 1.2 percent to $6,871,470.

"The relationship between pay and performance is pronounced," said Peter Chingos, head of Mercer Human Resources Consulting executive compensation practice. "We are also seeing dramatic pullback in traditional stock options, companies replacing some of that with other forms of long-term compensation, like restricted stock or performance shares, but they are not doing it dollar-for-dollar, which is leading to a reduction in the long-term incentive values."

The Equilar analysis of company proxies included only CEOs who were in the position for both years.

Long term, down

Overall, the median value of long-term incentives -- composed of options, restricted stock awards and long-term incentive plan payouts, fell nearly 10 percent from 2002 to $4,682,400.

"There is a significant trend which we have been seeing at a variety of companies, and that is shifting away from stock options to other forms of equity compensation, particularly the use of restricted stock, and that has good and bad elements," said Brandon Rees, researcher in the AFL-CIO office of investment.

He said the labor group prefers stock grants where ultimate CEO ownership of shares is determined by exceeding financial or other goals, as opposed to just giving the stock to the executive after a vesting period.

"Microsoft, International Paper and General Electric have stopped using stock options for their CEOs and are instead giving them actual shares of stock if goals are met, but other companies are giving stock with time vesting, and we do not support that," he said.

The median value of option grants, using the Black-Scholes valuation method, tumbled 19.2 percent to $3,152,036.

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Other forms of long-term pay are on the upswing amid the waning use of stock options -- primarily because companies are anticipating having to charge their cost against earnings, a requirement recommended by the U.S. accounting industry's rulemaker last week.

For those CEOs receiving a restricted stock awards, the median value leaped 38 percent to $1,978,102 in 2003. The percentage of CEOs receiving restricted stock awards rose to 35.1 percent from 30.1 percent in 2002, according to Equilar.

For those CEOs receiving a payout from a long-term incentive plan, the median value of these payouts in 2003 increased by 60.7 percent to $1,458,605 in 2003. The percentage of CEOs receiving long-term incentive plan payouts increased to 28.1 percent in 2003 from 25.8 percent in 2002.

The S&P 500 companies reported earnings growth of 28.3 percent growth in the final quarter of 2003 and 21.3 percent in the third quarter. Overall, the profits at the 500 grew 18.4 percent last year, according to First Call.

In 2002, profits were 0.1 percent higher, and fell 17.3 percent in 2001.

As for the stock market, the Dow Jones industrial average rose 25.3 percent, the biggest rise since 1996. The S&P 500 climbed 26.4 percent, its biggest annual gain since 1998 and the Nasdaq composite soared 50 percent, the biggest rise since 1999.  Top of page

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