By James Kwak
That picture is average total annual compensation for top-five named executive officers at U.S. public companies from 2008 to 2010. (It’s from a blog post by Carol Bowie of MSCI, which used to be called Morgan Stanley Capital International.) Over those two years, total annual compensation increased by 37% for all companies and by 54% for companies in the S&P 500. Basically, while bonuses and severance packages have fallen or grown slowly, that effect has been swamped by much bigger stock and option packages. Which is evidence that if you try to rein in some of the more egregious aspects of executive compensation, the executives, their friends on the compensation committee, and their hired guns at the compensation consulting firms will figure out ways to keep the party going.
It’s possible that 2008 was a low year for executive compensation because of the financial crisis and recession, so this is just rapid growth from a low base. But check this out:
A December 2011 survey by pay consultant Towers Watson of 265 mid-size and large organizations found 61 percent expect their annual bonus pools for 2011 “to be as large or larger than those for 2010,” while 58 percent of respondents expect to fund their annual incentive plans “at or above target levels based on their companies’ year-to-date performance.” Moreover, 48 percent of those surveyed expect long-term incentive plans that are tied to explicit performance conditions “to be funded at or above target levels based on year-to-date performance.”
Critically, 61 percent of respondent in the Towers survey said they believe their total shareholder return will decline or remain flat.