Top insurance executives are in third place among industry sectors for total compensation packages, but without stock considerations their cash paychecks are the biggest, a survey has found.

According to The Conference Board, the highest median total compensation was recorded for utilities CEOs ($3.9 million), followed by food and tobacco ($3.8 million), and insurance ($3.2 million), with construction a close fourth.

The group said its research found that chief executive officers of the largest companies actually have a substantial amount of "skin in the game" when the amount of their pay tied to their company's stock is considered.

For the insurance CEOs, the median cash compensation (sum of annualized salary, bonus, and non-equity incentive compensation) is highest among industries at $1.6 million.

Total compensation--where insurers rank third--is defined as the sum of annualized salary, bonus, non-equity incentive compensation, the reported grant date present value of options, the value of stock awards, the change in pension value, and all other compensation.

The Conference Board said larger-revenue companies compensate their CEOs at a higher level, but a notably smaller portion of compensation is delivered through salary.

Smaller-revenue companies--representing some 10 percent of companies examined--deliver 57 percent of their total compensation in salary, while the largest 10 percent of companies, in terms of revenue, deliver only 12.45 percent as salary.

The Conference Board said the fraction of compensation delivered in the form of stock and stock options (both forms of "at-risk" compensation) increases as the revenue of the company increases.

The group speculated that there are several likely reasons for this mix of compensation elements.

The million-dollar cap on corporate tax deductibility for elements of compensation not related to performance makes it relatively more costly to compensate executives in cash using traditional vehicles such as salary and bonuses above $1 million.

"Small companies could also rely more heavily on salary because, in general, the impact of CEO leadership (new products, marketing or processes) may be more immediate and thus effectively rewarded using shorter-term compensation," the report's authors wrote.

Chief executives of the largest companies have a surprising amount of "skin in the game," holding many multiples of their salary in stock and stock options in the company, the report said.

Looking at CEOs of the smallest companies, the median chief executive is holding 11-times salary in stock and stock options (total holdings, vested and unvested), but their CEO counterpart among the largest 10 percent of companies is holding over 80-times salary in company stock and stock options, the Conference Board said.

"There is a lot of debate about how making chief executives feel at risk for the stock price will align their interests more closely with those of the shareholders," noted the report. "Under this logic, big multiples are good--it should make the CEO think more like shareholders. This measure would suggest that a significant degree of alignment should have been achieved already, especially for the largest companies."

The amount of "skin in the game," the report said, appears less dramatic if total holdings are looked at as a percentage of total compensation instead of as a multiple of salary, prompting the question of whether salary is the right denominator for measuring how much skin there is in the game.

It is also important to note, according to the Conference Board, that the "wealth" measured in terms of company stock does not capture other forms of wealth or holdings of any stock beyond that of the CEO's own company.

Special Reports /

Insurance CEOs Rake In Cash, But Not Stock

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