Executive Pay Matches Performance

According to a recent study by Equilar and The Wall Street Journal, executive pay seems to becoming more aligned with performance. Examining the period from 2008 to 2010, CEOs received bigger than expected rewards when the company's performance exceeded expectations, but when the company's performance did not meet expectations, CEOs lost much of their potential pay. One pay-for-performance deal we particularly liked was that given to Macy's CEO Terry Lundgren in 2009. Mr Lundgren was given 666,666 shares of restricted stock. In order to receive any shares, Macy's stock had to outperform five of ten large retailer's stock over the next three years. To receive all of the restricted stock, Macy's stock had to outperform at least seven of the ten retailers. In the end, Mr. Lundgren received $22.5 million, far more than the projected $2.4 million, as Macy's stock nearly quadrupled over the next three years and outperformed seven of the selected companies. We like that Mr. Lundgren's restricted stock was tied to the company outperforming and not just the result of a general market increase.