CEOs of higher-performing companies saw significant increases in the value of their unexercised stock options last year in comparison to CEOs of lower-performing companies, according to a new CEO pay analysis conducted by Watson Wyatt.
According to Watson Wyatt and its first look at 2006 executive pay levels:
- The median in-the-money value of unexercised stock options for CEOs at higher-performing companies more than tripled last year, from $13.8 million in 2005 to $42.6 million last year.
- At the same time, CEOs at lower-performing companies experienced a 5% increase in this value, from $19.7 million in 2005 to $20.6 million last year.
Note that company performance in the Watson Wyatt study is determined based on total returns to shareholders (TRS). TRS at higher-performing companies averaged 25% compared with 7% at lower-performing firms.
According to Ira Kay, global director of compensation consulting at Watson Wyatt:
Given the stock market's strong performance last year, it is not surprising that the unrealized gains on stock options soared, especially for CEOs at the best-performing companies. While the appropriate level of executive rewards is open to debate, it is clear that the greatest gains are going to those whose companies are performing best. This shows that the pay-for-performance model is working at most companies.
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