The Directors and Boards Survey: CEO and director compensation 2011: there has been some catch-up CEO pay, and say on pay in having limited impact on a board's approach to executive compensation.

• Author: Shaw, David
• Position: SURVEY ON EXECUTIVE AND DIRECTOR COMPENSATION - Survey

MORE THAN A FEW of the respondents to our most recent survey on CEO and director compensation indicated that the issue of executive compensation was being kept alive by "class warfare rhetoric from Washington," the fact that "every day, no matter in what media, there is a story on executive pay," and that it is "a popular politician and media issue." As one director noted, "There may be a disconnect between the performance that the board pays for and how performance is understood by observers. Even through plain language, it can be hard to understand why a pay plan makes sense for the value being added, especially when some performance elements that are not in a plan may be in the headlines."

We would argue, however, that the way things look from the outside is what matters when it comes to media, governmental, and activist scrutiny, and the optics on executive compensation will continue to fan the flames of this controversy.

The following brief analysis is based on a comparison with our last compensation survey, which we published 18 months ago. While the economy is currently wobbling, the last year and a half have certainly been better in terms of revenues for many companies than the dark days of 2008 and 2009. In fact, directors reported that 2010 revenues were up a healthy 23% over 2009, from an average of $2.25 billion to S2.8 billion.

Here's where the troubling averages emerge. During the same period, total CEO compensation--cash, bonus, benefits, long term incentives, and perquisites--increased 38%, from $1.65 million lo $2.3 million, outpacing reported revenue growth (we did not ask about profit growth). Some of this may be explained, as several directors reported, by the fact that CEO compensation was catching up after being flat or down in 2008 and 2009. But while CEO compensation may have caught up, the average reported total compensation of the company's workers decreased 3% in the last 18 months. The average CEO in our survey now earns 46 times the average worker for his or her company, up from a multiple of 38 last year.

Granted, these are averages, and averages tend to hide the impact of outliers (celebrity CEOs, certain industries that were hit harder by economic factors with consequent pressure on worker wages, and so on.) These averages also don't tend lo deal with realized compensation. As one director noted, "This pinpoints a fundamental flaw in compensation reporting. The executives of a company should be judged based...