Study: Corporate Compensation Falls

Compiled By Traci Purdum Over the past three years compensation for top corporate management has fallen, prompting the need for new corporate-compensation programs, according to a recent report by Watson Wyatt Worldwide. The report, Changing the Way America Gets Paid, predicts that pay levels will continue to fall not only for executives but also for the broader corporate population, particularly as more companies stop using stock options. "Stock options and other incentive pay-based tools that tie individual and company performance have been the heart of America's global competitive advantage for many years," says Ira Kay, national director of compensation consulting at Watson Wyatt. "They have created enormous value for companies and for the overall economy, even while factoring in the recent stock market correction. But the heavy reliance on stock options is beginning to shift." Also cited as reasons for reduced corporate compensation:

  • Increasing demand for shareholder-friendly compensation programs;
  • Companies pushing for more employee stock ownership programs;
  • The probable change in the accounting rules for stock options.
"As options play a reduced role in compensation packages, companies will need to ensure that they maintain a program of sufficient incentives to encourage and acknowledge progress," says Kay. "When the labor market tightens again, companies will need to be ready with new compensation strategies that maintain competitive advantages and continue to attract and retain the best employees."
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