Community Corner

Moving Beyond the Financial Crisis: 2009/2010 Report on Executive Pay

Watson Wyatt’s 2009/2010 Report on Executive Pay, “Moving Beyond the Financial Crisis,” reveals that the core U.S. executive pay model, predicated on pay for performance, remains intact and well structured. Our research demonstrates significant declines in the realizable value of compensation as well as total ownership and incentive value (shares owned outright plus value of outstanding equity plus annual bonus payouts) held by executives. These declines are commensurate with losses suffered by shareholders in late 2008. This year’s report also provides empirical evidence through an in-depth review of the relationship between CEO pay and organizational risk about which elements of compensation architecture strengthen or weaken the relationship. Our findings on risk-mitigating and risk-aggravating pay elements often run counter to conventional wisdom; for example, a higher proportion of stock options in the mix of long-term incentives actually mitigates risk. Overall, we find that the executive compensation architecture at most firms does not encourage excessive risk taking.



Research Report — November 2009



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