CEO pay falls by 7% during financial crisis

Remuneration for chief executives has taken a hit during the global financial crisis, dropping by almost 7% in the year ending in May, according to new research from consulting firm Hay Group.

The company’s survey of executive pay shows the total reward for chief executives, including fixed pay packets plus incentives, has fallen by 6.8% in the first decline in remuneration since the start of the survey over a decade ago.

The survey also showed the “fixed” portion of chief executive pay has increased by just 2.8% during the past year, compared with 10% growth the same time last year.

Hay Group head of executive reward consulting Trevor Warden said in a statement the results show a clear link between company performance and chief executive remuneration, and that chief executives’ packages are more closely linked to corporate performance than any other member of a board or executive team.

“Performance-based pay is a reality in difficult times and what goes up can also come down,” he said.

“CEOs are the most closely linked to corporate results of any of the senior executive team, which is why their pay has adjusted significantly to the recent economic and profit downturn. These days an increasing portion of CEO total reward is provided in incentive based pay – hence the overall decline in reward in the past year.”

Warden also noted chief executives take a risk when accepting incentive-based pay packages, and that a company must continue to deliver solid results if that level of remuneration is to be continued.

“The interesting thing is the CEO total reward had declined at a time when most wage and salary earners still enjoyed relatively good pay rises thanks to recent EBA decisions. That’s the risk a CEO takes with incentive pay – when the times are good and profits are rising strongly they benefit, but things can also move into a reverse gear,” Warden said.

The survey covers 84 different companies operating in Australia, with over half of the ASX top 50 surveyed.