Top-Paid CEOs Took Pay Cut in '08, Study Shows

BIG corporations, buffeted by widespread economic pain and heightened scrutiny of lush compensation packages, appear to be paying attention to a longstanding complaint from shareholders: When it comes to executive pay, greed — even the appearance of it — is not good.

Executive compensation for the highest-paid chief executives at public companies fell in 2008, the first such downturn in five years. And the bottom dropped out of the bonus pool, the incentive that angered investors after the controversial bonus payouts at the American International Group.

“We could begin to see a fundamental sea change in the compensation of executives,” says Charles M. Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware.

“The idea should be that compensation is related to the overall value of the company,” he adds. “If shareholder value has fallen, so should the value of the executive pay package. Pay should reflect company performance and align with shareholder interests.”

For some time now, “should” has been the operative word for investors and corporate governance groups pressing for closer links among executive pay, performance and shareholder value.

But the recent public outrage over A.I.G. , Merrill Lynch and other struggling or taxpayer-supported companies that paid big bonuses — as well as continuing business woes and the fear of possible shareholder revolts — has spurred some corporate compensation committees to rein in executive pay and cut or even do away with bonuses. (At A.I.G., 15 of the largest 20 bonuses, totaling about $30 million, have been returned.)

“We’re seeing at long last that boards are linking pay closer to performance,” says Stephen M. Davis, senior fellow at the Millstein Center for Corporate Governance and Performance at the Yale School of Management. “The challenge is whether they see this as a one-off episode to address public anger over out-of-control pay or if this is something that will be more permanent.

“These are green shoots,” he says of the lower pay figures. “To use a spring analogy, it remains to be seen whether these are annuals or perennials.”

The compensation research firm Equilar (equilar.com) recently compiled data for The New York Times reflecting pay for 200 chief executives at 198 public companies that filed their annual proxies by March 27 and had revenue of at least $6.3 billion. (Two companies, Motorola and Synnex, had co-C.E.O.’s.)

The data supports Mr. Elson’s and Mr. Davis’s observations. It shows that as shareholder values and financial performance have fallen, so have average and median compensation numbers for chief executives — although not by the same margins. And some C.E.O.’s continue to receive lavish pay packages even though many employees and shareholders have suffered hardships like layoffs, pay cuts and deep losses in 401(k)’s and other investments.

Equilar found that median total compensation — the midpoint at which half the values are lower and half are higher — was down 9.4 percent last year, to $8.4 million. Average total compensation fell 5.1 percent, to $10.8 million. The totals are for C.E.O.’s who have held their jobs for at least two complete years.

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The last time Equilar recorded a big decline in C.E.O. pay was after the tech bubble burst, from 2001 to 2002. During that period, compensation for chief executives at companies in the Standard & Poor’s 500-stock index declined 9.9 percent, falling to a median of $7.06 million in 2002 from $7.84 million in 2001. From 2002 to 2003, S.& P. 500 executive pay was essentially flat. After that, it increased each year until last year.

The big slide in bonuses was largely responsible for dragging down executive pay in 2008. For C.E.O.’s in place at least two years, median cash bonuses plummeted 21.6 percent, with the average cash payout down 16 percent. The median cash bonus in 2008 was about $1.57 million, compared with more than $2 million in 2007. The average bonus was $2.42 million, down from $2.88 million a year earlier.

Stock and option awards remain huge pieces of C.E.O. pay. But their values are based on the dates when they were granted, so there is no guarantee that executives will actually realize these amounts; in many cases, the values have declined with the market.

CONTINUED : The Exec Who Earned the Most Is...

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