Employers Pull Back on Executive Compensation in 2009

CIOs who think they can leave their current employers for a more lucrative job may find themselves disappointed. The results of a recent ExecuNet survey suggest that recession-related cost-cutting is finally hitting the compensation packages of the corporate top brass. The findings don’t bode well for unemployed CIOs, either, who may be trying to negotiate job offers.

[ SLIDE SHOW: The 10 Highest-Paid Tech Chiefs of 2008 ]

Companies are scaling back on the pay packages they offer to new executives in 2009, according to the survey, which queried 476 search firm consultants and corporate HR professionals. Where performance bonuses comprised 80 percent of executive compensation packages in 2008, this year, they make up 71 percent.

Companies also trimmed sign-on bonuses. Last year, sign-on bonuses constituted 36 percent of packages, compared with 29 percent in 2009.

Recession-induced changes to executive compensation affect the extent to which employers rely on stock options to recruit new executives, too, the survey reports. In 2008, half of pay packages (51 percent) were devoted to equity compensation. This year, as the stock market plummeted, just under a third (32 percent) of packages were built around equity.

In better times, CIOs and executives have enjoyed guaranteed severance packages— another perk that employers are now shying away from. The portion of executive compensation packages devoted to guaranteed severance dropped 10 percent this year, from 44 percent in 2008.

Just as employers scale back this year on key components of executive compensation packages, they appear more flexible with other aspects of job offers. For example, employers seem less concerned with non-compete agreements. This year, non-compete agreements made up 38 percent of packages, down 27 percent from last year.

The changes employers are making to executive pay packages come at a time when executive compensation is being fiercely debated in the news and on Capital Hill. The changes may also partly explain why executive turnover has been low for at least the last 10 months, according to Liberum Research.

ExecuNet President Mark Anderson says companies’ compensation plans for new executives have shifted in response to the employment market: Employers don’t have to compete for talent to as a great a degree as they did in 2006 and 2007, he says. Therefore, they don’t have to be as generous.

Following that same logic, Anderson doesn’t think these new compensation packages will last long. In a press release, he said, “…with executive turnover poised to spike during the early stages of the recovery, which could be stronger than many expect, these compensation trends may be short-lived, as companies enhance their efforts to recruit and retain top talent in a more competitive marketplace.”