How is that for a title? Before I get flamed on this topic, let me pull some excerpts from a Human Resource Executive Online article (emphasis mine):
A recent study conducted by DolmatConnell & Partners debunks the myth of runaway executive pay. The findings of the study tell a much different story than what the media has heralded — instead of out-of-control CEO pay, the study shows that CEO pay rises and falls with company financials.
…
The study looked at compensation of CEOs in The Dow Jones Industrial Average over the past 10 years in relation to company financials, such as revenue, market capitalization and total shareholder return.
It reveals that total CEO pay has grown at an annual compounded rate of 15.1 percent over the past 10 years, while compounded total shareholder return has grown 12.1 percent over the same period.
Individual components of CEO pay are equally as related to certain financial metrics and show the same rise and fall with financial performance.
For example, base salaries are strongly linked to revenues because base salaries are the element of CEO compensation that is paid for shouldering responsibilities that generally increase with company size, and revenues are the primary indicator of company size.
The study found that although the salaries of CEOs from the Dow companies have increased at an average annual rate of 9.6 percent over the past 10 years, revenues have increased at an average annual rate that is approximately 50 percent greater — at 14.7 percent per year.
Now how can this be when we have watched the mainstream media perform a witch hunt on CEO compensation over the past 1-2 years? Here are the two pull quotes in my opinion:
These finding illustrates the larger trend in DJIA companies: Base salary increases have been accompanied by revenue growth, showing a pay-for-performance relationship.
and
So, instead of gratuitously handing out large equity grants to CEOs, companies are carefully assessing CEO performance as related to company performance to ensure that shareholder interests are appropriately addressed.
You can read the entire analysis in regards to short-term incentives, long-term incentives and other aspects of CEO compensation. You are going to find the same answers as here.
In case my position on this topic isn’t clear, I’ll reference a post from 13 months ago – The Underpaid CEO.