War & Attitudes Squeeze Salaries

By: Antone Gonsalves

The poor economy, war, and the backlash against corporate accounting scandals have combined to thin the wallets of many CEOs. But don't fret for their well-being: Chief executives in general have managed to hold their own against increasing pressure from stockholders to reduce compensation packages. This is true, as well, for insurance CEOs, who on average are bringing home slightly smaller paychecks this year. However, by applying some of the metrics so familiar to the IT executives who report to them—performance, efficiency improvements, ROI—insurance CEOs appear to be keeping salary reductions from becoming too painful.

Because paychecks shrank for the highest-paid CEOs, average total compensation for chief executives dropped 20 percent last year to $10.83 million, according to a survey of 200 large companies conducted for the New York Times by Pearl Meyer & Partners (Barrington, IL), the compensation practice of Clark/Bardes Consulting. However, median pay rose, increasing by six percent to $8.52 million.

Insurance CEOs received less in salary, bonuses and other cash payments in 2002, receiving an average of $1.72 million, compared to $1.85 million the previous year, according to a survey by Mercer Human Resources Consulting Inc. (New York). The median dropped to $1.09 million from $1.28 million in 2001.

CEOs in banking and financial services received slightly more on average, but less on a median basis, Mercer reported. The latter dipped to $1.74 million from $1.8 million the prior year, while the average rose to $1.94 million from $1.93 million.

Melissa Burek, an executive compensation consultant for Mercer, suggests that the extent to which an insurance CEO is held accountable for the outcome of IT projects depends on how integral technology deployment is to the firm's business strategy. "In general, CEOs are absolutely being held more accountable for everything," Burek says.

For 2003, executive pay is being squeezed by the weak economy and the Iraq war, which has dampened consumer spending. However, last summer the financial services industry was optimistic enough to predict a 4.1 percent salary increase in 2003 for executives, according to Stephen Kline, principal analyst for New York-based Buck Consultants, a subsidiary of Mellon Financial.

Now, however, financial services companies are either planning to forego executive salary increases or are scaling back the percentages, Kline reports. "A lot of the insurance companies are impaired because the market is in the tank and that's bringing down the income generated from their portfolios, which is generally sizable," he says.

Probably the biggest impact on financial services CEO compensation will be from companies deciding to expense stock options issued to executives. About 130 of 5,000 publicly traded companies have voluntarily agreed to expense stock options, with almost half of them financial services companies, according to Kline.