Pay levels of chief executive officers may seem unduly high at a time when ordinary workers are scrambling to make ends meet, but that doesn't mean their pay is unrelated to their companies' performance. Early results from the latest Hay Group Inc. executive compensation survey show a strong relationship between CEO annual cash compensation, particularly incentive payouts, and company profitability.
Base salaries for CEOs in 40 large industrial companies chosen at random by the management consulting firm rose an average of just 6.6% this year, and a third of the top brass received no increase at all. More significantly, ceos in companies whose profits were down 20% last year had their bonuses trimmed back by an average 19%. And those whose corporations racked up profit gains of 20% garnered average bonus hikes of 19%. The close relationship between profits and bonuses, reports Hay Group, "is apparent in almost all of the individual companies surveyed."