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 30.4 percent of the equity in their firms, up from 21.6 percent in 2008. Non-founding IT chief executives owned an average of 5.9 percent of the equity at their firms this year, compared with 5.1 percent of equity last year.

The increase in equity for CEOs of life sciences firms was less dramatic. Founding chief executives saw their average ownership share increase from 17.2 percent in 2008 to 19 percent this year, according to the study. Non-founding CEOs increased their stakes in companies from 5.6 percent in 2008 to 5.8 percent. However, non-founder leadership teams in life sciences saw their collective equity stakes decrease this year to 17.1 percent from 18.2 percent in 2008.

The number of companies that completed surveys for the study—which also compares executive pay in China, the UK, India, and Israel—grew from about 450 last year to more than 700 this year, Lapat told me. The VCs that have helped convince their portfolio company executives to participate in the report get special access to the data, including a look at how pay at firms in which they invest compares to others in their field in aggregate, he noted. (Also, it’s probably worth noting for the VCs that have access to the study is that the findings can be sliced and diced many different ways by users on the study website.)

Clean technology firms—even those focused on science-based businesses such as cellulosic ethanol development—were counted as part of the tallies for tech firms. Lapat said that there were not enough cleantech companies in the study to break them out as a separate category.

Here are some charts that compare average CEO base salaries according to industry sector and region:

—Non-founder tech CEOs

2009: $231,000

2008: $230,000


—Non-founder life sciences CEOs

2009: $285,000

2008: $273,000


—2009 CEO pay by sector (combines non-founders and founders):

Tech

IT Services/Consulting: $219,500

Cleantech: $210,500

Communications: $210,100

Hardware/Semiconductors: $203,900

Software: $189,700

Digital Media/Content/Information: $171,800


Life Sciences

Therapeutics $287,000

Medical devices: $266,900

Tools/Instrumentation: $215,700


—2009 CEO pay by sector and region (includes founders and non-founders):


Life Sciences

Mid-Atlantic (NY, NJ, PA): $288,500

California: $285,100

New England: $276,900

Midwest: $239,300

West (excludes California and includes Washington and Oregon): $234,600

Southeast: $225,100


Technology

New England: $207,200

Midwest: $202,600

California: $193,800

Southeast: $192,100

Mid-Atlantic: $190,100

West: $184,900


J. Robert Scott’s Lapat told me not to read too much into the regional differences in pay, since other factors such as the number of employees at a firm and the maturity of a company can have a greater impact on compensation than geography.

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