Rewards of the season.

• Author: Rock, Robert H.
• Position: Letter From the Chairman - CEO compensation - Brief Article

TIS THE SEASON. Every year at this time the executive compensation sweepstakes are announced. This year's winners, as always, are CEOs of large publicly held companies. Despite less than stellar financial performance, CEOs again took home big paychecks. As usual, many CEOs scored big through the exercise of stock options. Despite the stock market slump, several CEOs racked up tens of millions of dollars from their stash of options.

In 2001 the S&P 500 Stock Index fell 13%, the largest drop in over 25 years. CEOs' cash compensation declined only 3% to a median of $1.8 million. The drop in combined salary plus bonus is the first since The Wall Street Journal began tracking CEO compensation.

Given salary cuts, reduced or eliminated bonuses, and worthless stock options, some CEOs were feeling the pinch. The WSJ reported that total direct compensation (salary, bonus, restricted stock, stock option exercise, and other long-term payments) declined about 1% last year to a median payout of just under $3 million. Again, this drop was a first. In general, performance did matter. CEOs whose companies performed better in terms of total shareholder return received significantly more compensation than their counterparts in poorer performing companies.

Although proxy statements indicate that CEO compensation was down last year, these public filings do not tell the whole story. Federal disclosure requirements fail to...