Investment Basics: What You Should Know
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In North Texas and elsewhere, last year was an ugly one for executive compensation at the largest and most scrutinized U. Following the government bailouts, public opinion about C-suite pay turned especially sour.
Weekly headlines highlighted troubles at high-profile companies, especially in the financial-services industry, where, despite the bailouts, recovering banks paid bonuses for rivaling those of their top years.
With millions of people losing their jobs, stock prices nose-diving, and isolated cases of executive malfeasance being uncovered, the public—and, increasingly, the government—came to believe that executive pay should decline.
For the last 20 years, media sources such as the Wall Street Journal have analyzed CEO compensation as reported in proxies among the largest companies, nationally or regionally. In its most recent analysis of the largest public companies, the Journal reported a 0. This is the first time in the history of the analysis that total stock options for non publicly traded companies in dallas declined for a second straight year.
So, for the first time, D CEO and Paradox Compensation Advisors, a Dallas-based compensation consulting firm, have partnered exclusively to study executive compensation trends among midsize companies in the Dallas-Fort Worth area.
Many factors explain the variations in pay across this ranking, including company size, maturity, financial results, compensation program features, and ownership history. There are also some significant differences in total direct compensation compared across various industries see chart.
Historically, certain industries have been higher-paying than others. The results by industry, however, are partly due to the varying impact that the economy has had on different sectors.
For example, was a relatively weak year in oil and gas, though the industry has rebounded in The health-services sector was not impacted significantly by the recession. How do results for the DFW Midsize Group differ from everything else we have come to understand about executive compensation?
The conventional wisdom is that midsize companies, especially those operating in Texas and the Midwest, are more restrained in their compensation practices than firms in other geographies and size categories—especially large, East Coast-based firms. In reality, the distinctions vary by type of pay—that is, base salary, annual bonus, and other cash incentives, plus long-term incentive awards. Base salary for executive positions is generally linked to company size typically by revenuenot by geography.
The theory stock options for non publicly traded companies in dallas that the larger the company, the more complex and impactful the position, thus driving a higher base salary for mega-company CEOs than their midsize organization counterparts. Many companies froze or even reduced base pay for executives in stock options for non publicly traded companies in dallas For the remainder of this constant population group, the median base pay increase was 4 percent.
That is, a substantial number of these companies were willing to forgo increases, eliminate incentive awards, or reduce compensation. Many observers of executive compensation trends over the last several years have opined that poor results in the final quarter of did not reflect the full year and thus, it stock options for non publicly traded companies in dallas unsurprising that annual bonuses were not down significantly from Pundits predicted a greater impact in Instead, ina number of large companies chose to soften their annual bonus objectives, explaining that the unpredictability of the economy had made it too difficult to set hard and fast performance expectations.
This practice generated stock options for non publicly traded companies in dallas bonuses on average for relatively weak performance, which may be hard for the average shareholder—or employee—to understand or accept. Our analysis shows that CEOs in the DFW Midsize Group were much more likely to receive less or zero annual bonus in response to performance than their peers in the largest firms. In these companies, median net income was 26 percent lower in than in In response, CEO bonuses in midsize companies in the Dallas-Fort Worth area were stock options for non publicly traded companies in dallas bruised over this same time frame: By comparison, 19 percent of companies in the Wall Street Journal analysis awarded no bonus to the CEO for performance.
By comparison, total cash compensation in the companies analyzed in the Journal study increased by 3. Companies were less generous in allocating awards of stock options and other types of equity-based grants e. Over the years, long-term incentives have become an increasing factor in the compensation of top executives as companies seek to create alignment with shareholder interests.
Frankly, given declines in stock prices, granting the number of stock options and other equity awards in required to maintain and previous year award levels would have been a hard sell to board committees that approve such grants and to increasingly active shareholder groups. Forty percent of the companies made no award in Among those CEOs on the job throughout and who did receive an award, there was no increase in median value over the two-year period.
Cameron notes several possible explanations for these results. Stock options for non publicly traded companies in dallas also sometimes see a very different philosophy about long-term incentives in midsize companies—that is, some of these companies tend to see long-term awards as a reward for past performance versus an incentive to enhance future shareholder value.
Considering the CEOs where full year-to-year comparisons are possible for andthere was no increase, on average, in the median value. However, the range in year-to-year comparisons of total direct compensation varied from minus 87 percent to plus percent for the CEOs.
Cameron notes that summary statistics can be especially misleading in this group because of less standardized approaches to executive compensation management in midsize companies versus larger firms.
A review of some of the top and lowest-paid CEOs illustrates the discretion frequently deployed and less strict adherence to competitive trends. These two companies were willing to make major awards in order to align executive compensation with strategic objectives and to reward their CEOs commensurately. Among the lower-paying companies in the group, Tandy Leather Factory no longer has a stock option or other equity plan.
At other midsize companies Tufco Technologies, for example, ranked second lowestoptions are not granted annually. Another lower-ranked company, U. Home Systems, notes in its proxy that awards under the restricted stock plan are triggered by meeting earnings per share goals. Thus, no awards were made in or The upshot of these findings is that, in harsh economic times, the DFW midsize companies are probably well-served by a philosophy of less entitlement and higher discretion.
A less structured approach to compensation is feasible when there is a high level of interaction among a relatively small group of executive officers, and the performance culture can be personally communicated and monitored. As companies grow, however, more standardization is almost inevitable due to higher shareholder scrutiny, the need to communicate clear expectations to an expanding group of executives, and increasing competition for talent with a broader cadre of companies.
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