Downturn seen hurting executive pay in '09, too

By Joseph A. Giannone

NEW YORK, Nov 20 (Reuters) - Plunging financial markets may finally compel boards to do what governance critics never could: get tough on lavish executive pay.

A financial crisis that is triggering losses and layoffs is expected to have a significant impact on executive pay starting next year, not just on Wall Street but across every industry, compensation consultants Pearl Meyer & Partners said on Thursday. The firm cited a survey of executives and directors at nearly 400 companies completed earlier this month.

Half of the respondents said they expected top-level executive salary growth to be slower in 2009, and nearly a fifth said their companies were strongly considering a salary freeze, said Jim Heim, a Boston-based executive pay consultant who helped compile the report.

"Boards are more cognizant of the optics of what they are doing," said Heim. "Extraordinary measures need to be taken."

Tumbling stocks and massive credit losses have slammed investors this year and prompted the U.S. government to put more than $1 trillion of taxpayer money at risk through financial bailouts. There is growing outrage about executives who enrich themselves when others are losing their jobs and their money.

Goldman Sachs (GS.N), UBS AG (UBSN.VX) and Deutsche Bank (DBKGn.DE) recently said they were responding to the new environment -- and regulatory pressures -- by denying bonuses to top executives.

UBS went a step further by creating a new bonus program that will let the bank reduce awards if its performance suffers in the years ahead.

Pearl Meyer said a number of companies likewise are considering setting tougher terms for incentive payments. Steps include raising the bar on performance-based awards and directors using their discretion to pay bonuses below levels set forth in compensation agreements.

"Some boards are considering slashing bonuses a little more," Heim said.

More than half of the respondents said they see themselves granting fewer stock options and restricted shares, despite the lower current price of many stocks, as well as cutting back on severance packages and executive perks.

"In this age of transparency, today's boards are finding it more and more difficult to defend perquisites," Heim said. "Over time I'd expect to see more and more of these disappear." (Editing by Lisa Von Ahn)