- The Washington Times - Tuesday, March 17, 2009

NEW YORK (AP) - A growing number of companies are freezing salaries, reducing bonus pools and making other major changes to their executive pay programs, a consulting firm reported Tuesday.

Of 145 companies surveyed during the first week of March, Watson Wyatt said roughly half plan to decrease this year’s bonus pool by an average of 40 percent. Also, the number of companies that have frozen salaries jumped to 55 percent, from 21 percent when the companies were first polled in December 2008.

“The recession has shone a light on executive pay, causing many companies to re-evaluate the long-term implications of their executive pay policies,” said Andrew Goldstein, Watson’s Wyatt’s co-leader of North American executive compensation consulting.

The report comes as public sentiment toward bonus pay has turned particularly sour in recent days after reports that American International Group would pay $165 million in bonuses to its executives after getting more than $170 billion in federal bailout money.

Watson Wyatt said 23 percent of respondents in its survey have added a policy allowing them to recoup some compensation under certain circumstances, such as if an employee’s actions hurt the company.

Nearly 40 percent of the companies said they had changed the performance metrics for their annual bonus plans, and 30 percent have changed the metrics for their long-term incentive grants.

A third of the companies expect the value of long-term incentive grants to fall, predicting an average decline of 35 percent.

Companies cited concerns about shareholder value and declining competitive pressure among the top reasons for reducing long-term incentive grants.

The Wall Street Journal reported Tuesday that some Wall Street firms are adjusting their pay programs to get around new federal limits on compensation. Officials at Citigroup Inc., Morgan Stanley and other recipients of federal aid are considering boosting base salaries to help offset the impact of caps on bonuses, the newspaper reported.

The economic stimulus package limits bonuses for the top executives of companies that received funding from the government’s Troubled Assets Relief Program, or TARP.

In its report, Watson Wyatt noted that more than 70 percent of the companies it surveyed had not installed a formal risk assessment process, despite TARP restrictions on compensation that encourage “excessive” risk-taking.

The firm reported that only 40 percent of the companies surveyed believe that reductions to their pay packages will be reversed in the future.

The firm said it surveyed companies in a wide range of industries.

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