Executive Compensation Matches Market Value

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.

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