Executive Compensation and the Current Recession

With the recession in full effect, just about every level on the corporate ladder is feeling the heat. Much has been made about the compensation packages for executives and whether or not they are being affected. The truth of the matter is that no one has been able to completely hide from the current situation. Things are difficult from the top on down, and this is being reflected in some of the recent changes being made in many of the nation's top firms. Their executives are having to deal with cuts in both salary and bonus compensation.


One of the reasons why this has been the case has to do with the stock market and the fact that many executive bonuses are tied to the success of a company's stock. Take Arunis Chesonis for example. The PAETEC executive had been making more than $1,000,000 annually, but in 2008, he saw his total compensation package drop to just above a half million. Though the majority of these executives are still making enough to put food on the table, the percentage declines are enough to scare many people in the current economy. It extends to lots of different industries and areas that were thought to be secure.

The scariest thing about executive compensation and the current recession is that a number of industries that were otherwise stable are seeing their CEOs and associates take dramatic cuts. Some law firms, for instance, have done away with the old lockstep form of compensation. Instead of paying every member of the firm equally based upon their experience, these firms are starting to pay associates based upon just how well they perform. As you might expect, this change has resulted in many individuals making less than they were under the old system and it's resulted in less compensation overall for a field that had been pretty healthy.

For the majority of CEOs out there, this problem is being compounded by the fact that they have retirement funds and pensions that are filled with the company's stock. That might have been a good thing a few years ago, but now the prices of those stocks have fallen for the most part. Where they used to have a great deal of company interest tied up in the ownership of those shares, they are now left with much less overall in their total package. The bigger question then becomes, Are CEOs and the like in for more cuts in the near future?

This depends upon just how bad the economy gets, but one would have to think that the current recession as about run its course in terms of reduced compensation. The majority of CEOs out there are still doing well, but reports of them still raking in huge bonuses are mostly overblown. They are struggling right along with their company, at least in relative terms. The salaries are still cushy, it is just that the majority of big dollar bonuses have taken a pretty hard hit over the last 24 months.

Source: Executive Compensation and the Current Recession