CEO Compensation Report

Pearl Meyer & Partners’ analysis of 2006 proxies for The New York Times revealed a closer relationship between CEO pay and corporate performance, as companies respond to strong pressure to restructure executive compensation programs to fuel long-term shareholder value. The survey also provided a preview of the likely impact of expanded disclosure rules currently under consideration by the SEC for implementation next year.

Compensation for Chief Executives of major U.S. companies rose 10% to a median of $8.4 million in 2005, according to the survey of 200 public industrial and service companies. Growth in executive pay paralleled a 15% increase in net income and a 6% rise in total shareholder return among the companies studied, which had average market capitalization of $32 billion.

Stock option values were down for a third straight year, declining 1.4% to $2.1 million atop a 7% decrease a year earlier. At the same time, the value of stock awards and long-term performance plans grew 15% to $1.9 million. The shift in equity use reflects a push by governance activists to put more executive compensation value into vehicles promoting long-term performance, rather than the more day-to-day market focus that critics say is engendered by heavy option use.

Bonuses saw more modest growth, up 7.7% over a year ago to $1.8 million. At many companies, performance hurdles had been raised to reflect an improved economic situation that had boosted previous bonus levels by more than one-third. Median salary increased 3.8% to $1.0 million.

Investors’ keen interest in the details of pay-for-performance plans will be stoked by the expected introduction of new SEC disclosure rules for 2007. The 2005 proxy results offer a preview of the likely impact of the proposed rules, which are intended to clarify information now omitted or obscured in public filings. The SEC had publicly stated this year that a long-required line item for “other” compensation, typically executive perquisites such as use of corporate aircraft, is discloseable even if the items were not treated as reportable income to the executive. As a result, many companies included more complete costs for the first time this year, boosting the median reported value of “Other” compensation by 13% to $188,173 – one of the biggest proportional increases among CEO pay components.