Executive pay at publicly traded companies here fell last year for the first time since 2000, as the beleaguered economy caused corporate performance—now a bigger factor in how execs are paid—to swoon.

Many public companies now base executive pay largely on the corporation's performance over the previous three years, and although 2006 and 2007 weren't bad for most companies here, 2008 mostly was a disaster, and performance pay for the year fell accordingly, the Journal of Business' annual analysis shows.

Top executives here saw their total direct compensation fall 3.6 percent in fiscal 2008, while their base pay—salary plus bonuses and other annual incentive compensation—tumbled 18.4 percent. That's in stark contrast to the whopping 23 percent average annual increase in total executive pay here so far this decade. The biggest annual increase came in 2004, at 63 percent. The last time total pay fell here, in 2000, the decline was less than 1 percent.

The Journal's executive-pay analysis this year included 91 executives from 19 publicly traded companies based in the Inland Northwest, using information those companies must disclose to the U.S. Securities and Exchange Commission in their annual proxy statements.

Those executives were paid an average of $705,311 in their employers' 2008 fiscal year, compared with an average of $731,385 in the previous year. Counting just salary and bonus pay, executives in the study received an average of $330,725 last year, compared with $405,216 in fiscal 2007.

There were wide variances among the companies included in this year's study, with such concerns as Ambassadors Group Inc., Gold Reserve Corp., and Idaho Independent Bank all recording declines of at least 40 percent in total executive pay, while several companies, including Avista Corp., Hecla Mining Co., Itron Inc., and Key Tronic Corp., hiked overall pay an average of more than 20 percent.

Total direct compensation includes salary, bonuses, and other annual cash incentive pay, the annual cost of long-term incentives such as stock options and restricted share grants, other long-term pay, pension-plan changes, and perquisites. Because executives come and go, the Journal's analysis includes a different set of executives each year. Also, when a top executive leaves a company at midyear, oftentimes with substantial parting gifts based on his or her employment agreement, those executives' compensation isn't included in the Journal's calculation of averages.

The average CEO here was paid about $1.2 million last year overall, down slightly from 2007, while base pay—salary and bonuses—for top executives here plummeted 27 percent last year, to $460,921, from $632,641 in 2007.

Longtime Spokane headhunter Jeannine Marx Fruci says the swings in executive pay seen these days reflect the notion that the old-school idea of being paid well just because you have a lofty title is diminishing.

"I see less of that," says Marx Fruci. "There's accountability now. The C-level executive expects to need to step up to the plate and take some risks. It's a new frontier—playing without the safety net."

The Wall Street Journal reported in April that executives in its annual study saw their overall direct compensation fall 8.5 percent. Its study, conducted by Hay Group, included just CEOs of companies with annual sales in excess of $5 billion, and uses median pay, rather than average pay, in its report. The median decrease for executives in the Journal of Business study was 2.4 percent.

New proxy disclosure rules approved by the SEC in 2006 require companies to divulge more information about the compensation packages provided to their top executives. Among those new disclosures is the cost companies incur in that given year when granting stock options and restricted shares, as well as more information about gains in executives' retirement plans. There's also now more information on perquisites, or "perks" for short, and on what payments an executive would receive if he or she were to leave the company.

Some companies now dedicate dozens of pages in their proxy statements to disclosure and discussion of executive compensation.

Because of the new rules, the Journal of Business no longer includes the full amount of gains from exercising stock options or newly vested restricted shares, because by adhering to the new SEC rules, companies now include the current-year cost of such gains, so adding them in again would be duplicative. Former Itron Chairman and CEO LeRoy Nosbaum, for instance, exercised options worth $8.8 million last year, though that amount isn't included in his total direct compensation for 2008, rather, the current-year cost of grants he might exercise later is listed. Nosbaum retired in March of this year.

The list

Topping this year's executive pay list is former Red Lion Hotels Corp. President and CEO Arthur Coffey, who left that Spokane company in February of last year and was eligible for a significant payout upon his departure. His overall compensation for the year was about $3.7 million, but that mostly included severance pay and modified stock options related to his departure. He had been ranked 16th in the previous year, and his pay this year wasn't included in averages calculated in the Journal's overall analysis.

Next on the list is Potlatch Corp. Chairman, President, and CEO Michael Covey, who had overall direct compensation last year of about $3.3 million. Covey, who ranked first on last year's list, saw his overall pay fall 15.6 percent in 2008.

Rounding out the top five were Itron's Nosbaum, at $2.6 million; Dennis Wheeler, chairman, president and CEO of Coeur d'Alene Mines Corp., at $2.25 million; and Scott Morris, chairman, president, and CEO of Avista, at $2.22 million.

Other notable execs in the top 10 were Phillips Baker Jr., president and CEO of Hecla, at $2.1 million; Coldwater Creek Inc. President and CEO Daniel Griesemer, at $2.0 million; and Malcom Unsworth, who was Itron's president and COO last year before being promoted to CEO in March, at $1.9 million.

The highest-paid female executive on this year's list, again, was Georgia Shonk-Simmons, president and chief merchandising officer at Coldwater Creek, who ranked ninth at about $1.7 million. Shonk-Simmons has ranked first on the list twice.

In addition to salary and bonus, an executive typically is awarded money based on the long-term performance of the company he or she helps to lead. The three most typical ways to pay for long-term performance are through stock options, restricted stock, and what are called "performance shares."

With a stock option, a company grants an executive the right to buy a certain number of common shares within a set period at a specified frozen price. The exercise price is set at the market price for the stock on the day the option is granted. If the stock price then climbs, the executive can exercise the option to buy those shares at the lower exercise price, and reap a gain by selling them. With restricted stock awards, the executive receives the shares outright, but they come with restrictions on when they vest and when the executive can sell them.

To explain performance shares, it's easiest to look at a specific example.

Hecla awards them to executives with the proviso that the shares mature after a three-year period, during which the company must meet certain strategic goals related to increases in mineral resources and cash flow from operations. The shares initially are valued at $100 each, but based on the company's performance over the following three years could be worth anywhere from nothing to $275 each.

For the three years ending in 2008, Hecla's mineral resources came in at 537 percent of target and the Coeur d'Alene-based company ended up at 72 percent of its cash-flow goals, and thus paid its top executives $161.42 per unit, far more than the $47.85 per unit it paid for 2007. That made CEO Phil Baker's 3,970 performance units worth $640,837, which is included under the "Long-term pay and pension changes" column on the Journal's list. Some companies list the annual cost of performance units under other categories, often under restricted stock awards.

Some companies no longer offer stock options to executives, but many still do, and there are a lot of unexercised shares sitting out there on which executives still could cash in. In this year's analysis, executives had accumulated options to buy an average of 204,265 shares each of their companies' stock. Given the decline in stock value some companies here have suffered, however, some unexercised options that executives have been granted currently are worthless, since the option price is greater than the stock's current price.

Also, executives in this year's analysis together have unvested restricted stock and performance-share units worth an estimated $21 million, or about an average of $231,000 each. Potlatch's Covey, for instance, is sitting on unvested stock and performance units worth an estimated $4.4 million, though payment of actual amounts tied to those shares will depend on the company's future performance.

Another item companies now must disclose in their main compensation tables is the change in value in each executive's pension plan. In most cases, those increases are relatively modest, usually less than $75,000, but sometimes they can be far more. Take, for instance, Avista's Scott Morris, whose pension account gained in value by about $560,000 during 2008. That amount is included in his overall compensation figure.

One of the types of executive pay that seems to raise the ire of shareholders nationally is perks, though examples of extravagance are hard to find among the proxies of the Inland Northwest companies studied in this analysis. Typically, such perks include matching contributions to 401(k)s, medical and life-insurance premiums, moving expenses for new hires, and sometimes club memberships and auto allowances.

Public companies also now provide much more disclosure on how much compensation an executive would receive if he or she left the company for specific reasons.

One recent example was Red Lion's Coffey, who would not have ended up atop this year's list without the $3.6 million in pay he received when he left the hospitality company.

Disparity among companies

Because much of an executive's pay these days is dependent on the financial performance of his or her employer, some companies—and some industries—paid their execs more last year than others did.

The three top execs at Ambassadors, the Spokane-based educational travel company, saw their overall pay fall an average of about 55 percent, while a pay cut at Gold Reserve was even more dramatic, with top execs suffering a 68 percent fall in overall pay. All four of Idaho Independent Bank's top brass saw their pay fall at least 40 percent, and big cuts took place at Coeur d'Alene-based Nighthawk Radiology Holdings Inc., too.

Some execs voluntarily gave up pay. Idaho Independent's Chairman and CEO Jack Gustavel relinquished $187,800 in 2008 performance bonus, while all of the top executives at Intermountain Community Bancorp elected not to accept bonuses that would have amounted to 8 percent of their salaries.

Meanwhile, overall compensation at Avista climbed an average of nearly 25 percent in 2008, following a big drop in average pay in 2007. Hecla's average increase was about 28 percent, and Itron's was about 25 percent.

Because compensation now often is based on multiple years of corporate performance, a company's earnings in a single year appears to have less of an overall impact on pay increases and decreases. That's probably a good thing for the top execs of the 19 companies included in this year's survey. Collectively, those companies' earnings fell more than 200 percent in 2008, while their collective return on average common equity fell nearly 10 percent.

In terms of industries, executive pay in the finance sector fell an average of about 15 percent last year, roughly the same as the decline in the high-technology sector here. Overall pay in the natural resources sector, which includes mining and wood products, fell about 11 percent, while compensation in the travel industry—Ambassadors and Red Lion—was flat. Sandpoint-based Coldwater Creek is the only retailer in the group; it's average pay increase was about 18 percent.