US: CEO pay

The results of the Wall Street Journal & Hay Group CEO Compensation study have been published. In Hay's press release it is stated:

"The year 2007 marked a major milestone in the history of CEO pay, according to the study. For the first time, performance-based plans overtook stock options as the most popular form of long-term incentive compensation, with 129 of the companies using a performance plan, up 5% from 2006. The two more traditional equity vehicles of stock options and time-vested restricted stock showed significant declines in 2007, with options declining 7% to 128 companies, and time-vested restricted stock plans declining 14% to 63 companies. Performance plans tie the level of a CEO’s pay directly to how the company performs relative to key business goals and strategic priorities. In most plans, if the company fails to achieve a certain level of performance, the awards will be worth nothing to the CEO ... The 2007 study focused on 200 companies with more than $5 billion in annual revenue that filed their proxy statements after October 1, 2007".

Elsewhere, research has been published exploring how compensation consultants influence the level and pay-performance sensitivity of CEO pay in America. The research - by Cadman et. al. and published here on SSRN - looked at a sample of 880 firms from the S&P 1500 for the fiscal year 2006. The authors state, to quote directly from their abstract on SSRN:

"We find evidence of greater compensation in the presence of a compensation consultant, consistent with theory that these consultants facilitate rent extraction. However, we find no evidence of less pay-performance sensitivity when compensation consultants are hired. Among firms that retain consultants, we also examine whether there is greater rent extraction for clients of consultants with potentially greater conflicts of interest. Using a variety of specifications, we are unable to find widespread evidence of more lucrative CEO pay packages for clients of conflicted consultants despite anecdotal evidence to the contrary. Overall, we conclude from our findings that the potential conflict of interest between the firm and consultant is not a primary driver of excessive CEO pay."

-----
NB: For a survey of directors' pay within UK FTSE350 companies, see KPMG's report "Directors' Compensation 2007", available here (you may need to provide your name, postal address and e-mail address to view the report).