US executive bonuses set to match boom levels

Corporation Boards and their CEOs seem not to have learned their lesson about the amorality of their greed in a jobless "boom." Such arrogance! ---BBB

US executive bonuses set to match boom levels
By Dan Roberts in New York
Published: March 21 2004 19:01 | Last Updated: March 21 2004 19:01

Bonuses payments for senior US executives are on track to match levels reached during the last boom, according to early analysis of 2003 figures, as rising awards in cash and shares make up for falling stock options.

The return of generous compensation packages, triggered partly by last year's recovery in company profits, is likely to reopen the debate about whether management incentives are properly aligned in big companies.

Critics ranging from governance watchdogs to billionaire investor Warren Buffett have argued that pay remains the "acid test" for wider boardroom reforms. They fear little progress has been made. Preliminary analysis by compensation consultants suggests that the criticism of excessive gains from stock options issued during the late 1990s has resulted in companies granting fewer new options in 2003. Instead, the studies of disclosures made mid-way through the reporting season show companies taking more advantage of straightforward cash bonuses or granting shares with restrictions on their use.

Pearl Meyer, a compensation consultant studying 50 of the 200 largest companies to have reported up to the beginning of March, said total cash compensation rose 17 per cent over 2002 levels while the value of stock options fell by a third. "Bonuses are back to the record levels in 2000 and 1999, but options are the lowest we have seen them since 1997," she said.

Paul Hodgson, an independent expert at The Corporate Library, said companies were swapping one form of pay for another. "I have been a little astonished at how little change there has been," he said. "There seems no moderation whatsoever."

But Mercer, which advises companies on executive pay strategies, said its early analysis of a slightly wider set of com- panies found surprising restraint given how far profits and share prices rose last year. Steve Harris, a partner at Mercer, said: "Bonuses have actually not been as strong as we would expect given the strong performance of many companies last year."

Mercer's preliminary look at 100 of the 350 largest companies found salary and bonuses rose 7.5 per cent compared with the previous year, but a decline in the expected value of long-term incentives of 16 per cent. Mr Harris said companies were deterred from issuing stock options because most expect to be forced to include such awards as an operating expense in future.

Some of the largest packages in 2003 were seen on Wall Street, led by Sandy Weill at Citigroup with $44.6m. Last year's bank deals still pale in comparison to those paid out at the top of the bull market in 2000 when Mr Weill received $127.8m and Sandy Warner, then chairman of JP Morgan Chase, was paid $60.1m.

But critics said continued large awards outside Wall Street were more surprising. "We all said it would change last year and it is still not happening," said Mr Hodgson. "Of course it's going to be slow and incremental but you should be able to see some change by now."