Separate Proxy Analysis Finds Stock Option Profits for CEOs Declined 13 Percent in 2007
WASHINGTON, March 20 /PRNewswire-FirstCall/ -- The vast majority of U.S. companies paid CEOs who departed in 2007 the same compensation disclosed in their 2007 proxy disclosures and provided no additional ad hoc termination payments, according to a survey by Watson Wyatt Worldwide, a leading global consulting firm. The analysis was conducted by comparing 2007 proxy disclosures with 8-K filings for CEOs departing between April and December 2007.
Watson Wyatt found 54 of 70 companies (77 percent) provided no additional compensation at termination to that disclosed to shareholders in the 2007 proxy. Disclosure of potential termination payments was required for the first time by the Securities and Exchange Commission (SEC) in 2007 proxy filings. The remaining 23 percent of companies increased compensation for their CEOs at termination by a median value of about $600,000. The weighted average of the extra payments, the difference between 8-K filings and what was reported in their proxy, was 224 percent. In some cases the increase included additional quid pro quos such as general release from claims, transition services provided as a non-CEO, additional non-compete time or an agreement to provide future consulting services. Smaller companies ($1.4 billion average revenue) were more likely than larger firms to provide exit pay above what was reported in their proxy.
"Despite a few high-profile exceptions, most companies are very forthright about what they will pay when their CEO leaves," said Ira Kay, global director of compensation consulting at Watson Wyatt. "Increased disclosures under the new SEC rules have prompted most companies to agree in advance on payments triggered at departure, whether it be retirement, an unanticipated termination, death or disability. Most companies are not straying from those terms. With increased disclosure and scrutiny by shareholders and the media, we expect to see even fewer ad hoc payments when CEOs depart." Meanwhile, in its first look at 2007 executive pay levels, a separate Watson Wyatt analysis of proxy statements and change-in-beneficial-ownership disclosures found the median in-the-money value of unexercised stock options for CEOs declined 13 percent last year, from $19.9 million in 2006 to $17.2 million.
The analysis, based on disclosures from 94 large U.S. companies with fiscal years ending in December 2007 and January 2008, found great disparity among CEOs at high- and low-performing companies. The median in-the-money value of unexercised stock options for CEOs at high-performing companies increased 87 percent from $22.5 million in 2006 to $42 million last year. At the same time, CEOs at low-performing companies experienced a 70 percent decrease from $15.6 million in 2006 to $4.6 million last year. Company performance is based on total returns to shareholders (TRS); at higher- performing companies, TRS averaged 25 percent last year, compared with negative 12 percent at lower-performing firms.
"With the stock market's uneven performance in 2007, the fact that the value of unexercised options declined is not surprising," Kay said. "But once again, we are seeing that the biggest financial gains will go to CEOs whose companies are outperforming their peers, a clear indication that pay for performance is working at most companies." About Watson Wyatt Worldwide Watson Wyatt (NYSE:WWNASDAQ:WW) is the trusted business partner to the world's leading organizations on people and financial issues. The firm's global services include: managing the cost and effectiveness of employee benefit programs; developing attraction, retention and reward strategies; advising pension plan sponsors and other institutions on optimal investment strategies; providing strategic and financial advice to insurance and financial services companies; and delivering related technology, outsourcing and data services. Watson Wyatt has 7,000 associates in 32 countries and is located on the Web at http://www.watsonwyatt.com/. DATASOURCE: Watson Wyatt Worldwide CONTACT: Ed Emerman, +1-609-275-5162, , for Watson Wyatt Worldwide; or Steve Arnoff of Watson Wyatt Worldwide, +1-703-258-7634, Web site: http://www.watsonwyatt.com/
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