Corporate brass win big pay hikes--despite recession
Once a year outsiders get a peak into the top of United States companies. By thumbing through documents put out by publicly owned firms before annual meetings, the curious can find out how much the five highest-paid officers earn.
The latest crop of these proxy statements shows top corporate brass are being well rewarded for their managerial chores during a recession. Pay hikes well in excess of cost-of-living increases were handed out in 1981, and many firms plan to offer an attractive new form of stock options that Congress authorized last year.
But at the same time, consultants who study the data say companies are likely to cut back on the proportion of executives who get pay hikes each year. And they also are seeking ways to tie executive bonuses more closely to performance.
''Companies are moving away from lush, loose formulas to something more precise--like achievement of a profit target,'' David McLaughlin, national director of Hay Strategic Compensation Services, says.
Last year's formulas, in general, produced generous pay hikes. The two top executives at 288 of the largest US firms received an average pay hike of 15.9 percent, according to a survey by Sibson & Company, a compensation consulting firm. That hike was well above the 8.9 percent boost in the consumer price index and higher than the 13.7 percent pay hike in 1980 for the same class of executives.
The Sibson study considered ''total current compensation--salary and bonus,'' says W. Donald Gough, managing principal of executive compensation at Sibson. The survey excluded such long-term compensation as stock options, as well as executives who had been promoted in the past year.
While Sibson found top executives generally did better if their firms' earnings rose, pay envelopes were fattened even if profits fell.
The average top executive received a hike in compensation of 19.6 percent at companies which made money. Meanwhile, their compensation climbed 6.8 percent at firms where earnings dropped. And yet the average decline in profits at these firms was 29 percent.
''There are salary increases even in years when profitability goes down. . . . The combined effect of increases in salary and a slight decrease in bonus still results in a net total increase in direct compensation,'' explains Harry Zebrowitz, senior vice-president of Segal Associates, compensation consultants.
In another survey, done by the Gallagher Presidents' Report, it was found that the average compensation for the top person at the largest companies climbed close to the million-dollar mark last year. The newsletter looked at the highest-paid manufacturing executives at 46 corporations. It found the average board chairman got a 22.2 percent raise to an average of $979,271 in salary and bonus. Company presidents got an average 19.4 percent boost to $683,274.
Of course, pay varies with the size of the corporation. The management consulting firm of Towers, Perrin, Forster & Crosby notes that the median compensation of chief executives at the top 100 industrial firms is more than twice the median compensation of executives at the industrial companies ranked from 400 to 500.
Compensation also is affected by the corporation's fortunes. Roughly 25 percent of the firms in the Sibson study made less in 1981 than in 1980. An estimated 10 to 15 percent of companies lowered executive pay as a result, Mr. Gough says. For example, at Hoover Company, an appliance manufacturer, Board Chairman Merle R. Rawson's total compensation fell from $297,000 in 1980 to $272 ,000 in 1981.The company lost $19 million last year.
While most companies' board of directors are reluctant to cut overall top management compensation, many are looking for ways to get more results for their dollars. For example, the bonus formula at some firms is being changed to consider more than just overall profits. A few firms now are also considering how the company compares to the competition on various performance measures, Mr. Zebrowitz says.
At the same time, larger companies increasingly are setting bonuses based on how a division manger runs a business unit, as opposed to how the company as a whole does. ''You see at the group-executive or the division-president level some 50 or 60 percent of the bonus riding on the particular business segment,'' says Mr. McLaughlin.
Of course the amount of money executives make on stock options, which are now taxed at a lower rate under a law passed last year, will depend on how well their firm's stock performs. About half the companies in the Sibson study plan to offer these new options.
As stock options are become more attractive, executives may find salary hikes coming less rapidly than in the recent past. Last year some 90 percent of executives got a pay hike. The percent of executives getting yearly hikes ''has peaked, and now will begin going down again,'' Mr. McLaughlin contends: ''My guess is that it will plummet to 65 to 70 percent'' this year, due to the lower rate of inflation and pressure on corporate profits.