Reuters reports today that CEO compensation has changed to more long-term options tied to stock performance. MSN ran it as “Average CEO now makes $10.7 million: Pay packages 5% fatter in 2004, but corporate leaders are working harder for their stock incentives, survey finds“.
For this to be Requisite, read it in light of Mark Van Clieaf’s work on CEO compensation and work levels. I believe that he will argue that this doesn’t solve the problem. Part of the problem is tying the CEO pay to stock performance, but at least it’s out a few years.
A case in point is Stanley O’Neal, Merrill Lynch & Co.’s (MER, news, msgs) chief executive, whose 2004 compensation totaled $32 million. Of this amount, $31.3 million was restricted stock that doesn’t vest until 2009.
A year earlier, just 40% of O’Neal’s $28 million of compensation was restricted, and nearly half came as a bonus.[Ed] Archer[, an MD at Pearl Meyer,] said companies are responding to the “cry among big shareholders to shift away from stock options, which they view as a giveaway, and toward performance-based compensation.”
In an interesting conversation we had recently, Naga Kumar of Management Development Institute talked about the problems of increasing profit with declining revenue. Another unsustainable business model. Van Clieaf used similar measures on the NYSE and found that most of the top 800 or so were not viable businesses: they spend more than they took in.