Chief Executives’ Pay Rose 15% Last Year

In a year of shrinking stock prices and growing distrust of corporate America, U.S. chief executives still took home 15% more cash last year as bonuses and salaries rose, according to an analysis of company pay records.

Although total compensation of the CEOs of the largest U.S. companies fell 9%, the drop was almost entirely due to a decline in the value of stock options, which are difficult to value and can prove worthless if stocks drop. Meanwhile, median salaries rose 6% and the median bonus soared 21%, according to an analysis by Equilar Inc., which tracks executive compensation.

“You would not think that bonuses would be up that high, given the number of companies where the stock performance is down,” said executive compensation consultant Brian Foley. “It’s hard to think of sectors that have performed particularly well, putting aside bankruptcy advisors.”

Measured on an average basis, bonuses declined 1.6%, but such figures were skewed by the small number of very large bonuses. Median calculations, meaning half of the bonuses were more and half were less, are less inclined to such skewing.

Experts said companies issued fewer stock options to CEOs because of growing pressure on companies to count the cost of options against profits, as well as the accounting complexity of giving a dollar value to what are essentially long-term wagers on stock prices.

Meanwhile, awards of restricted stock to CEOs took on a renewed appeal.

Equilar compared CEO pay packages at 333 companies in the benchmark Standard & Poor’s 500 index with the pay the year before, based on data required in company regulatory filings.

Last year, layoffs at U.S. companies soared, the S&P; 500 index declined 23% and investors pulled $27.1 billion from stock mutual funds.

Nonetheless, corporate boards in general raised cash payments to CEOs. This may be because pay already had been trimmed in 2001, because new CEOs were lured with hefty first-year payments or simply because stock options went out of style, pay experts said.

The median of total CEO cash earnings was $1.74 million last year, compared with $1.51 million the year before. The median total compensation, including stock options, fell 8.7% to $7.03 million, from $7.71 million the year before.

Even as stock options packages were trimmed, restricted stock awards grew in popularity. Restricted stock awards, grants of company shares that cannot be sold for a period of time and sometimes only when the company meets performance goals, rose 40% on average last year.

The value of restricted stock is easily measured, because it is basically a conditional gift of stock. Companies have long argued that stock options are difficult, if not impossible, to give a dollar value.

Stock options give the recipient the right, but not the obligation, to buy stock at a fixed price some time in the future. They can be extremely valuable if the stock rises, but worthless if the stock falls.

Restricted stock was given to 29% of CEOs last year, compared with 23% in 2001. Dan Moynihan, a principal at consulting firm Compensation Resources Inc., said he expected about 50% of companies to issue restricted stock to executives in 2003, as more corporate boards research its benefits.

The average value of restricted stock awards was $1.3 million, up from $937,000 in 2001.