Executive Compensation Matches Market Value

July 7, 2006
A ten-year research project released by the Business Roundtable on July 5 concludes that median total compensation of CEOs of 350 large companies is consistent with the growth of the market value and shareholder returns of those companies. Under the ...

A ten-year research project released by the Business Roundtable on July 5 concludes that median total compensation of CEOs of 350 large companies is consistent with the growth of the market value and shareholder returns of those companies.

Under the direction of executive compensation expert Frederic W. Cook, Mercer Human Resource Consulting's Mercer 350 database showed a 9.6% increase in CEO compensation. This tracks closely with the 9.9% medium annual shareholder return and a 8.8% annual growth rate in median total market capitalization over the 1995-2005 period studied for the survey.

"As leaders of multi-million and billion dollar organizations, we fully appreciate that the media and the general public would be interested in executive compensation," said John J. Castellani, president of Business Roundtable, "But misleading reports that large numbers of CEOs make hundreds of millions of dollars every year are simply untrue. Executive compensation has closely followed the growth that companies have experienced in the last ten years."

Median salaries grew at a compound annual growth rate of 3% ($729,000 to $975,000) but median company revenues increased at a greater rate, from $5.1 billion to $7.6 billion (4.2%). The compound annual rate of growth in median company net income (8.5%) exceeded growth in CEO bonuses (7.4%) by more than one percentage point during the same ten-year period.

Peter Chingos, a senior executive compensation consultant with Mercer, said that pay for performance is now standard operating procedure at most American corporations. "The close alignment of CEO pay and performance reflected in Mercer's survey numbers over the last decade indicates that most organizations have embraced responsible executive compensation," Chingos said.

The Mercer 350 database, which includes 14 years of executive compensation and organization performance data, tracks general industrial and service companies. The median revenue of the companies covered is $7.6 billion. Median figures for CEO pay and incentives are used to ensure a fair and accurate representation of compensation.

Business Roundtable has supported the recent Securities and Exchange Commission proposal to enhance transparency and timely disclosure of compensation for top executives at publicly held companies.

Interested in information related to this topic? Subscribe to our weekly Value-chain eNewsletter.

Popular Sponsored Recommendations

Empowering the Modern Workforce: The Power of Connected Worker Technologies

March 1, 2024
Explore real-world strategies to boost worker safety, collaboration, training, and productivity in manufacturing. Emphasizing Industry 4.0, we'll discuss digitalization and automation...

3 Best Practices to Create a Product-Centric Competitive Advantage with PRO.FILE PLM

Jan. 25, 2024
Gain insight on best practices and strategies you need to accelerate engineering change management and reduce time to market. Register now for your opportunity to accelerate your...

Transformative Capabilities for XaaS Models in Manufacturing

Feb. 14, 2024
The manufacturing sector is undergoing a pivotal shift toward "servitization," or enhancing product offerings with services and embracing a subscription model. This transition...

Shifting Your Business from Products to Service-Based Business Models: Generating Predictable Revenues

Oct. 27, 2023
Executive summary on a recent IndustryWeek-hosted webinar sponsored by SAP

Voice your opinion!

To join the conversation, and become an exclusive member of IndustryWeek, create an account today!