The economic downturn is taking a toll at the top of the corporate ladder, where CEOs are now more likely to be ousted for poor performance. Corporate boards are holding chief executives accountable for falling stock prices as well as huge losses suffered in the credit and mortgage markets.
The turnover rate for CEOs over the past year exceeds 18 percent, says Paul Hodgson, a senior research associate and the author of a report on CEO pay for The Corporate Library, which tracks executive compensation data. CEOs are also spending less time at the helm. "The median tenure is down to four years now," he says.
The most visible CEO departures have come in the financial services industry, which has been battered by the credit crunch and mortgage-related losses.
"Whenever we go through a period of economic turmoil, particularly if it's focused on particular industries, there tends to be a reaction of some boards to terminate the CEO as quickly as possible — even though it can cost significant amounts of money for shareholders" in terms of severance packages, Hodgson says.
Financial services firms that have booted their chief execs of late include:
• American International Group (AIG): The insurance giant ousted CEO Martin J. Sullivan on June 15 after the company lost billions of dollars from mortgage-related investments.
• Wachovia Corp.: The fourth-largest U.S. bank forced out CEO Ken Thompson on June 2 for the questionable purchase of a mortgage lender and the company's legal troubles.
• Bear Stearns Cos.: The investment bank, facing vast mortgage-related losses, replaced James Cayne as CEO in January. The company's subsequent collapse led to its purchase by JPMorgan Chase & Co. in March.
• Ambac Financial Group Inc.: The New York-based financial services company ousted CEO Robert Genader in January after consecutive losses over three quarters.
• MBIA Inc.: The financial services company with a focus on bond insurance replaced CEO Gary Dunton in February after posting a fourth-quarter loss.
• Merrill Lynch & Co.: The investment bank forced out CEO Stanley O'Neal in December 2007 after the company sustained billions in losses from mortgage-related investments.
• Citigroup Inc.: Charles Prince stepped down as head of the investment bank in November 2007 following billions of dollars in losses and write-downs.
Despite the financial services sector's downturn, four out of the top 10 highest-paid executives in 2007 headed firms in the industry. Topping the list is John Thain, who took the helm of Merrill Lynch weeks after it ousted O'Neal following historic losses at the firm. Thain's compensation last year? $83.1 million.
The Associated Press contributed to this report.
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