July 25 (Bloomberg) -- U.S. homebuilders are in the second year of a slump as inventories of unsold homes reach records, and some of the industry's top chief executive officers are feeling the pain with deep cuts in their compensation.

I looked at 11 major companies and found that their median total return was a negative 24 percent in 2006. In 2005, that median return also was 24 percent, but without the minus sign.

Median annual bonuses in 2006 for the 11 dropped 53 percent from 2005, while the average bonus decreased 50 percent, to $6.7 million from $13.5 million.

Median total pay, which includes stock and option awards, declined 55 percent to $13.6 million from $25.4 million. Average total pay in 2006 declined 54 percent to $12 million from $26.3 million.

(For detailed data on the pay and performance of the 11 homebuilders, click here.)

Even though pay is much lower now, there is no correlation between the size of a homebuilding company and the 2006 total pay of its CEO. And there is no correlation between the so- called excess return of the company (i.e., the company's total return in its 2006 fiscal year less the return on the Standard & Poor's 500 Index for the same period) and the change in CEO total pay from 2005 to 2006.

Of the 11 CEOs, three should be singled out for praise on the pay-for-performance front:

NVR, Lennar

* Paul Saville of NVR Inc. in McLean, Virginia. His total pay in 2006 declined 91 percent from 2005, reaching the lowest of any U.S. homebuilder -- just $809,000. He received no bonus, stock or option awards. His consolation prize was a one-third increase in his base salary, to $800,000. Even with that hefty raise, he had the second-lowest salary among the 11 homebuilders. Excess total return was negative 24 percent.

* Stuart Miller of Miami-based Lennar Corp., the biggest homebuilder by revenue. His total pay fell 72 percent, to $9.1 million. Excess total return was negative 22 percent.

* Stephen Scarborough of Standard Pacific Corp. in Irvine, California. He took a 66 percent cut in total pay to $7.3 million. Excess total return was 43 percent.

Now for three CEOs on the other side of the spectrum:

* Donald Tomnitz of D.R. Horton Inc. in Fort Worth, Texas. He had the lowest salary, $300,000, yet was the only CEO who received a raise in total pay in 2006. It wasn't much of a raise -- 3.5 percent to a hefty $13.6 million. That's not bad when you deliver an excess return to your shareholders of negative 44 percent.

Ryland, Toll Brothers

* Chad Dreier of Ryland Group Inc., Calabasas, California. His pay dropped 30 percent to $24.2 million from $34.4 million. Nonetheless, that $24.2 million pay package made him the highest-paid CEO among the 11. Yet in sales, Ryland ranked 10th out of the 11 companies. Excess total return was negative 39 percent.

* Robert Toll of Toll Brothers Inc., the largest luxury homebuilder and based in Horsham, Pennsylvania. His total pay dropped 36 percent, though he ended up as the second highest- paid CEO, at $23.4 million. Excess total return was negative 38 percent.

The pay and performance of the remaining five CEOs among the 11 I studied aren't remarkable in the context of the overall statistical findings. The CEOs are:

* Timothy Eller of Dallas-based Centex Corp.

* Ara Hovnanian of Hovnanian Enterprises Inc. in Red Bank, New Jersey.

* Bruce Karatz (who is no longer the CEO) of Los Angeles- based KB Home.

* Larry Mizel of M.D.C. Holdings Inc. in Denver.

* Richard Dugas of Bloomfield Hills, Michigan-based Pulte Homes Inc.

Changes Needed

The need to emphasize low pay for low performance doesn't seem to have ended with the homebuilders' 2006 fiscal years. Measuring from the end of those years through this July 23, median excess return for the 11 homebuilders was a lamentably negative 45 percent, with the worst performance turned in by Hovnanian Enterprises (excess return of negative 64 percent) and the least worst performance produced by Centex Corp. (excess return of negative 12 percent.)

Though the top homebuilding companies are following pay- for-performance, the industry as a whole needs to make two changes:

* Bring total pay more in line with company size so that, other things being equal, CEOs running larger companies get more pay than those running smaller companies.

* And far more important, bring the change in pay more in line with the change in performance, as measured by the one performance measure that means more to shareholders than any other -- excess total return.

(Graef Crystal is a columnist for Bloomberg News. The opinions expressed are his own.)

To contact the writer of this column: Graef Crystal in Las Vegas at at graefc@bloomberg.net.

Last Updated: July 25, 2007 00:16 EDT