How Much Is That CEO at the Net Firm?

In order to lure execs from established offline firms, dot-coms are paying their CEOs an increasing percentage of their compensation in cash rather than stock options, according to a PricewaterhouseCoopers LLP study released Tuesday.

On average, a CEO at an Internet company earned a base salary of US$238,710 in 1999. Adding in cash bonuses, however, brought that average to an eye-popping $325,861. Based on data from companies studied in both 1998 and 1999, the average cash bonus for a CEO increased 31 percent, which in turn pushed the average total cash compensation up 16 percent.

The study, which was conducted by PricewaterhouseCoopers' human resources consulting division, the Unifi Network, analyzed the compensation packages of top executives at 123 public Internet companies in 1999. The study found that since April's market downturn, good Net execs are demanding more cash.

"Companies are allocating [more cash] to top performers, and [these bonuses] are much more performance-oriented," says Edward J. Speidel, a director in Unifi's executive-compensation practice. Many bonuses, he adds, are tied to short-term incentives. For example, many companies rewarded executives who increased revenue or pushed a company closer to profitability.

Although cash compensation has increased, Internet CEOs still own large chunks of their firms. According the study, the average CEO owns 9.4 percent of the company over which he or she presides. At 1999 stock values, that averaged out to $8.6 million worth of stock and other long-term incentives.

The study also confirmed that the executive structures of maturing Internet companies are changing. "More and more founding CEOs are stepping up to the role of chairman, moving away from day-to-day positions to higher-level strategy positions," Speidel says. "Many of the visionaries can't handle day-to-day operations."Typically, as these CEOs step up to the role of chairman, a second generation of management comes in to focus on the bottom line and bring the company to profitability, the study found. This trend was illustrated by the increase in the number of COOs at Net firms from 1998 to 1999. These COOs don't come cheap, however. The study found that they have an average cash compensation of $317,926, just shy of the CEO average.

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