Improved business results for midsized companies in North Texas last year translated into more pay for their CEOs. That’s according to a new study of executive compensation trends among middle-market public companies in Dallas-Fort Worth by D CEO magazine and Paradox Compensation Advisors, a Dallas-based compensation consulting firm.

Paradox and the magazine first partnered to do the exclusive study last year, when we noted that economists often point to the middle-market-companies group as a harbinger for recovery. Midsize companies, in many ways, are the “heartland” of American business, both locally and nationally. Yet while executive compensation is covered generally in the press, no one else is focusing exclusively on the middle market in North Texas.

How midsize companies choose to reward their CEOs should provide some clue about their economic confidence. This year, our study also provides a first-time look at a rarely analyzed and poorly understood topic: board of directors compensation.

Last year, if you’ll remember, business conditions were a little different than they are now. National surveys of the largest companies in America were showing a slight decline in CEO pay, public opinion of executive pay hit an all-time low, and government intervention was on the rise.

Last year’s study for D CEO, which examined business results from 2009, was based on 49 companies ranging in size from $50 million to $800 million in annual revenue. These companies had experienced an 11 percent median one-year decline in revenue, and a 26 percent reduction in net income. Our analysis demonstrated that in the wake of difficult economic times, local midsize companies were more likely than larger companies to freeze CEO pay­—or to reduce it.

A key question for this year’s study: whether the economic recovery has led to a rebound in CEO pay among these businesses.

Overall Improvement
This year’s group was again determined based on annual revenue (between $50 million and $950 million). A few companies dropped out of the group—several due to M&A activity and one that suffered a precipitous drop in revenue—while a handful of new companies moved in.

In all, we reviewed the 2010 performance of 45 companies for this year’s survey. On average, total revenue had climbed by 11 percent and net income increased by 33 percent, indicating significant growth among middle-market companies in North Texas.

The chart below shows total direct compensation for the CEOs of these companies, arrayed from about $8 million for Comstock Resources CEO M. Jay Allison at the top, down to $262,500 for Tandy Leather Factory’s Jon Thompson.

Reports on the 2010 performance of the largest companies nationally also showed overall improvement in revenue growth and net income. These improvements were accompanied by significant increases in bonuses and equity compensation. A study of CEOs in the Standard & Poor’s 500 by Equilar, an executive compensation research firm, showed a 24 percent increase in total direct compensation following two straight years of small declines.

Our study last year indicated that CEOs at DFW midsize companies experienced somewhat larger declines in total direct compensation in percentage terms than their counterparts at bigger companies. A significant number of these midsize companies chose to freeze or reduce base salaries and/or forego incentive awards for CEOs. In this year’s analysis, we focused on whether or not improved results led midsize companies to loosen the purse strings a bit.


Total direct compensation in 2010 for the DFW Midsize Group CEOs was $727,721 at the median. Considering the 43 CEOs where full 2009 versus 2010 comparisons are possible, this is a seven percent increase in the median value. In cases where the same incumbent was in place, 26 companies made increases to the CEO’s compensation, 14 companies decreased pay, and three made no adjustment. The range in year-to-year swings varied from minus-67 percent to plus-177 percent.

However, “summary statistics of total direct compensation in this group have to be viewed with a grain of salt, because of less standardized approaches to executive compensation than what’s typical in larger public firms,” says Marsha Cameron, Paradox senior partner. “For instance, these companies are less like to award equity every year. Thus, a ‘decrease’ could simply be the result of a biannual equity-award practice. Some pay history needs to be examined to understand what really happened with these companies in 2010.”

Where base CEO salaries are concerned, the median for this group was $410,923, a 1 percent increase over the year before. Interestingly, this is lower than the average increase reported in most national surveys for all employees (2.9 percent). In the 43 companies where the same incumbent was in place during the last two years, 24 companies increased base salary in 2010, 16 maintained base salary at the same level, and three actually decreased base salary for the CEO. Among those experiencing the largest increases were Lawrence Cohen at Capital Senior Living (up 48 percent) and George F. Jones Jr. at Texas Bancshares (up 21 percent). It is risky, though, to evaluate just one component of compensation in isolation. For instance, Cohen’s base salary increase was due to eliminating a special quarterly bonus for achieving earnings-per-share goals and implementing a new employment agreement.

Bonuses Were Up
Revenue growth and net income are two factors that often are considered when determining bonuses. Given the significant uptick in both metrics among the midsize companies, increased bonus payouts would be anticipated. Excluding 10 companies that paid no bonuses for 2010 performance, the median bonus paid was $257,700 (versus $250,000 in 2009). Twenty-two percent paid no bonus, versus 41 percent in last year’s study. Clearly, bonus payouts improved here, primarily because more companies paid bonuses.

The highest bonuses in the midsize group were paid to Allison at Comstock Resources ($2.8 million) and Rick Wessel (about $1.5 million) at First Cash Financial Services. In fact, Allison’s bonus is ranked among the highest (specifically, eighth) among all DFW companies.For the most part, financial results did indeed appear to impact bonus awards. Six of the 10 companies paying no bonuses had negative net income, while three companies (Comstock, Nexstar, and Union Drilling) did pay bonuses to the CEO despite negative income. In the case of Comstock and Nexstar, losses diminished substantially compared to 2009. The compensation committee of Comstock’s board noted that management had successfully executed a challenging strategic shift, and losses were cut in half in spite of low natural gas prices. The company’s bonus system is admittedly “subjective,” i.e., based on the consideration of financial and other strategic factors, but non-formulaic. Thus, there is no automatic “zero-ing out” of bonus awards when net income is negative.

Cameron of Paradox notes that “most larger firms have formulaic bonus programs, where pre-set goals are linked to specific levels of bonus payouts. A substantial number of midsize companies still use a more discretionary approach to determining bonuses, reflecting more flexibility among these organizations than is found at larger firms.” Also, in larger firms, shareholder groups appear to be more active, and institutional investors are guided by organizations such as Institutional Shareholder Services that evaluate the “shareholder-friendliness” of executive pay programs.


The DFW midsize companies paid a median $630,000 in total cash compensation (which includes salary and annual bonuses), versus $547,957 in 2009—a 15 percent increase. In contrast, total cash in 2009 had dipped by 1 percent versus 2008. More companies paid bonuses in 2010, and salary increases were higher. This is a strong indicator that midsize companies were feeling confident about their own economic recovery.

Simple Long-Term Programs
Over the last couple of decades, long-term incentives (e.g., stock options, restricted stock or units, and other long-term performance plans) have played an increasingly important role in executive compensation. At larger firms, the fair market value of long-term incentive awards accounts for 50 percent or more of the CEO’s total pay package. Larger public companies, both locally and nationally, tend to have multiple long-term incentive approaches and, in any given year, the CEO receives several types of awards. In both poor and healthy economic times, companies make grants to motivate executives to enhance shareholder returns and, consequently, to share in that success.

In general, midsize companies have much simpler long-term incentive programs than larger companies, and some smaller firms have no plan at all. Last year, our study found that the DFW midsize companies were far less likely in 2009 to make long-term incentive awards to CEOs than larger companies, and that finding has not changed based on economic improvement. Forty-nine percent of the companies made no awards in 2010, versus 40 percent in 2009. If an award was made, the median value was $305,144, which is 12 percent higher than the 2009 median value among those actually receiving an award.

“Not much has changed in regard to long-term incentives among midsize companies over the past year,” says Cameron of Paradox. “They are more aggressive in this area than private companies, and less systematic than larger public firms. Plans are not as complex as those in larger companies, and grants may be less frequent.”


Only two CEOs in the midsize group have long-term incentive awards that begin to compete with those typical of larger public firms: Allison of Comstock Resources ($4.7 million), and Glenn Darden of Quicksilver Resources ($3.7 million). Allison’s award was made in restricted stock that vests over four years, and the actual value to him will be based on the company’s stock price when the award vests. His 2010 award is actually down in value from prior years (minus-43 percent versus 2009). Whereas the Comstock compensation committee applies judgment about the impact of the role on strategic initiatives when making grants, the Quicksilver committee works with a third-party consultant, analyzes practices in peer companies, and has a stated philosophy that guides grant practices. All of these factors were considered when determining Darden’s 2010 stock option and restricted stock awards.

Company size, stage in the corporate lifecycle, financial results, compensation philosophy, and ownership history all influence total direct-compensation decisions. Industry is also a factor because certain industries have historically been higher-paying than others, and the economy has impacted some industries more intensely than others.

In many ways, compensation among the midsize group is less predictable than at larger companies. Midsize companies are willing to make reductions in challenging times, but have been unwilling to fully reopen the money spigot once the economy begins to improve. Continued caution appears to be the modus operandi in most cases.

Directors And The Economy
If examining executive compensation can be challenging, measuring board of directors compensation can be even more so. Paradox Compensation Advisors examined the same 45 companies to provide some insights on how directors are compensated in the midsize segment.

Total direct compensation for directors within the same company often varies, based on the specific role. Given the scrutiny and liability related to reporting company financials since Sarbanes-Oxley was passed and implemented, it’s not surprising that the audit committee chair has risen to the fore as one of the highest paid positions on most public boards. Pay for the compensation chair has also increased, again in recognition of increased regulation and reporting. Given the challenge of recruiting experienced directors with the skills to add value in today’s business and regulatory environment, it’s unlikely that compensation for board members will decline.

Uniquely in our annual study of middle-market companies in North Texas, this is one area of compensation where the economy has little impact.