Grant Thornton Finds Sobering Outcomes for 2009 Executive Pay

We step beyond the Big Four firms for this blog post, going to the home page of Grant Thornton (GT) for an interesting and very relevant study on executive compensation. This is fresh off the press as it captures sentiment as of February 2009. The findings are quite sobering and the ultimate impact of the slowing economy is being felt where it hurts the most – the executive wallet.

Clearly, all companies have re-thought their compensation structure and programs and made some tough choices on where and how to allocate a smaller pool of dollars. GT surveyed 227 top companies all across the US with the following conclusions:

Base Salary
About 50% of companies are freezing executive base salaries in 2009, and 75% are holding or reducing their 2009 salary budget as compared to 2008. 34% of companies are decreasing 2009 salary budgets while 15% are actually reducing salaries, indicating companies will very selective in giving merit increases in 2009.

Bottom Line: Expect the same pay in 2009, likely more work and responsibility.


Bonus Plan
More than two-thirds companies’ 2008 bonuses have been below targeted levels; and 25% did not pay any bonus at all for 2008. And to compound this further, 2009 bonus budgets will be same or lower than 2008 bonus budgets. And the bar is higher in 2009 than in 2008 to get bonuses

Bottom Line: Annual bonuses are no longer a sure thing


Long-term Incentive Plan
Most companies did not adjust long-term incentive (LTI) grant practices in 2008 but about half are downward adjusting grant values and/or the number of underlying shares granted in 2009.

Bottom Line: Long term incentives look unlikely

Underwater Stock Options
Many companies don’t yet have a plan to deal with underwater stock options, a key issue impacting 2009 executive compensation plans. Owing to the huge fall in stock prices, 75% of public companies have more than 75% of their outstanding stock options underwater. But more than 50% of these companies have put in place or are putting in place a re-pricing or exchange program to fix this, and a number of companies are either making supplemental stock grants or are granting equity incentives other than options.

Bottom Line: Some hope that say $60-floor options may reprice to $6-floor options

Special Retention
25% of companies have already implemented or considering a special retention program; and those with a significant percentage of underwater stock options are more likely to consider a special retention program..

Bottom Line: If options are getting repriced, good chance retention schemes may follow

Obviously, this is a sobering commentary on the state of affairs in US companies and the crackdown on salaries has been recent, rapid and drastic. Executives will have to manage on lower incomes during these challenging times and can hope for the economy to improve before more money flows into the personal balance sheet.

The entire study is available on http://tinyurl.com/cnzdum, and is worth reading.