Private Companies Slash Executive Pay And Employee Stock Option Grants

Private Companies Slash Executive Pay And Employee Stock Option Grants

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Syzygy Consulting Group's 2008 Pre-IPO and Private Company Total
Compensation Survey reports that private companies have significantly
decreased CEO pay and total employee ownership. "Not surprisingly, the
2008 data demonstrates much of what we've seen and heard in the
Boardrooms. Board members, which are mostly investors and other venture
capital firms, are pulling back excessive salaries and reducing overall
stock option grants until they see real gains in revenue, profits and a
clear path to shareholder returns," reports David Broman, Syzygy's CEO.

It's common knowledge that public offerings (IPOs) and acquisitions
are at an all time low. There is no longer that quick path to
liquidity. In addition, the performance bar for private companies has
increased significantly. "The financial backers of private companies
are holding the line on executive pay and employee stock option grants
because they have to," Broman said. "Board of Directors are prudent
when defining CEO pay and employee stock option pools. Their most
promising path towards liquidity is not an IPO but being acquired by a
larger company. Boards want to make certain that excessive pay is not
seen as a deal-breaker," he added.

Syzygy's Pre-IPO and Private Company Total Compensation Survey,
collected annually since 1999, is recognized nationally as the premier
source of private company compensation data. "Our survey team has
worked diligently over the last four months compiling pay practice data
on over 37,800 employees at 278 companies," said Brian Andriuzzo,
Syzygy's CFO. The 2008 key findings include:Median CEO total cash
compensation decreased 8.7 percent, with the biggest decrease in the
Software and Life Sciences/Biotechnology sectors, which saw a decrease
of 11.5 and 10.6 percent respectively. CFO total cash compensation
decline 10.9 percent in 2008, with the Life Sciences/Biotechnology
sector CFO taking home 18.7 percent less than in 2007.Aggregate
employee ownership decreased 9 percent, falling to 15.14 percent of
outstanding common share equivalents. Again, the Life
Sciences/Biotechnology sector saw the greatest decline in 2008, with
employee ownership decreasing by 27 percent. Only the
E-commerce/Internet sector showed a gain in employee ownership,
increasing by 25 percent.CEO stock option holding also declined by 4.2
percent in 2008, with the median CEO-non-founder holdings at 4.462
percent of the companies they lead. The Life Sciences/Biotechnology
CEO-non-founder saw their equity stake drop by 13.7 percent. A
CFO-non-founder now holds a median 0.914 percent of the company, a
slight decrease from comparable 2007 holdings. Most of the decrease in
executive ownership is the result of dilution from new investments and
lower new hire grants to incoming CEOs and CFOs.A CEO-founder generally
receives 39.5 percent less cash compensation than a non-founder CEO,
which is offset by stock option grants that are 2.4 times greater than
their non-founder counterpart.Mr. Andriuzzo commented on other
enlightening aspects of this year's results. "Private companies are
more generous when addressing the healthcare needs of their employees.
In 2008, private companies absorbed more of the increase in employer
sponsored health care costs, resulting in a median decrease of 15
percent in the amount employees contribute to cover premiums. In
addition," observed Andriuzzo, "private companies increased paid time
off or vacation days by 36.4 percent in 2008, paid holidays by 11
percent, and increased matching contributions to employee funded 401(k)
retirement accounts by 33.3 percent when compared to the level of 2007
contributions."

However, not all pay practices at private companies are bucking the
trend of their public company counterparts. "It is somewhat troubling
that there was no change in executive severances or CEO golden
parachutes in 2008," added Mr. Broman, "even though the value of
severance packages for rank-and-file employees decreased by 69.3
percent." It seems this is one area where private companies have yet to
take a stand. "In addition," Broman concluded, "compensation for an
independent Board Chairman nearly doubled in 2008, and a Board
Committee Chairman saw their pay increase by 9.9 percent. It may seem
like a double standard but private companies are still willing to pay
top dollar for the Board guidance needed to succeed."

For more details about the 2008 survey results, contact a Syzygy
compensation consultant at 925-284-3669 or visit
www.syzygyconsulting.com .

About Syzygy Consulting Group LLC

Syzygy Consulting Group LLC, established experts in corporate
compensation practices, serves clients ranging from large public
corporations to small private companies. Founded in 1995, Syzygy's
customized consulting services help clients define and implement
compensation programs to retain key talent, link compensation to
performance and improve overall compensation effectiveness. Syzygy's
Pre-IPO and Private Company Total Compensation Survey began in 1999,
and now reflects nearly 10 years of data on private company pay
practices. Only participating companies receive the confidential
results, and participants are usually clients of Syzygy or preferred
private company clients of Silicon Valley's leading law firms including
Cooley Godward, DLA Piper, Fenwick & West, Gibson Dunn, Greenberg
Traurig, Manatt Phelps, Morgan Lewis, Morrison & Foerster, Orrick
and Simpson Thacher. Syzygy is a registered trademark of Syzygy
Consulting Group