Tech Executive Pay Raises Way Down, New Study Says

12/1/09

Technology executive pay raises in 2009 have taken their biggest nosedive of the past decade, according to a new compensation study. The study, which polled privately held firms from around the U.S., indicates that the current economic downturn has had a more drastic impact on executive pay than the period after the dot-com bubble burst.

The annual CompStudy—conducted by executive search firm J. Robert Scott and Ernst & Young, with some help from academics at Harvard Business School—showed base salaries of non-founder U.S. tech executives increased by a scant .8 percent between 2008 and 2009, down from a 4.7 percent jump in salaries from 2007 to 2008. Also, the salaries of tech executives in the study took a bigger hit than their life sciences counterparts. Base salaries at life sciences firms grew by 3.2 percent between 2008 and 2009, according to the study. (Read on for comparisons of executive pay by region and industry sector.)

The study is unique because its statistics concern only private companies—many of which are supported by venture capital—that aren’t required to report executive compensation to the SEC like publicly traded firms are. And while executive pay is only one area of spending for private firms, it’s a window into how startups are spending their money in the current stormy economy climate. Even during the last major recession in the 2001-2002 timeframe, IT executives were given better raises than they got this year, according to the study. Though it’s tough to draw any conclusions from that statistic, it could be one way to measure the financial health of U.S. tech startups today.

“The most striking theme here is that in tech, compensation is flat to down,” said Aaron Lapat, a managing director at J. Robert Scott in Boston. “For the ten years we’ve been doing this, compensation has never been down in tech, even in 2001 and 2002.”

When counting potential bonus pay at tech firms, according to Lapat, IT executive compensation is down a fraction of a percent. However, the amount of executives’ potential bonuses and the sum of bonus awards they actually earn can vary significantly, making base salaries a safer indicator of actual pay this year compared with last year. (That’s why the tables on the following page do not combine salaries with bonus pay.)

Still, some would argue that, especially for founding executives, the percentage of equity that they retain is crucially important to their ultimate financial gains. On this score, founding CEOs of tech firms increased their average holdings to … Next Page »

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