CEOs under fire to perform – or else

In the end, Terry Semel held his job as CEO for six years – a longer time than some chief executive officers are granted to produce results.

This week, he's exiting the corner office at Yahoo!, joining a trend of CEO turnovers, that, by some measures, stands at record levels.

The pay for corporate leaders remains sky high, but those compensation packages now face growing scrutiny from both investors and Congress. And the pressure to perform has also increased.

In fact, many CEOs probably feel as if a "for sale" sign sits right outside their door. If a stock isn't performing well, the board will either look for a buyer or find that buyers arrive uninvited. At the hamburger chain Wendy's International, for example, CEO Kerrii Anderson is struggling to revive sales, even as board chairman James Pickett is studying whether shareholders would be better served by selling the company.

And Dow Jones & Co. saw its stagnant share price jump after Rupert Murdoch's News Corp. made a $5 billion takeover offer for the financial publisher. If the controlling shareholders don't agree to the deal, the CEO could find himself struggling to unlock similar value for shareholders.

"There's less room for companies to coast," says John Challenger, president of the outplacement firm Challenger, Gray & Christmas in Chicago. "You get one term in office" as CEO these days. "Some make it for the next term."

CEO turnover hit record levels last year, according to numbers that Challenger has kept tabs on annually since 2000. Judging by the pace through this May, 2007 could set another record.

Investors, of course, always want to see a rising share price. With stock indexes near record levels this week, it may not appear like the most trying of times for top executives.

But many stocks remain far below the highs they hit in 2000, as the 1990s bull market peaked. Yahoo! is one example – with investor worries amplified by the ascendancy of Google as a magnet for online advertising. Mr. Semel, who will remain as the company's board chairman, resigned to make way for the website's co-founder Jerry Yang to return as CEO.

Another big force is also bearing down on chief executives: the threat of buyout by private equity firms.

These bids by big investment funds often aren't hostile. And sometimes the CEO remains in office even as the firm changes from being a publicly traded company to a privately held one. But the growing power of private equity has changed the marketplace for corporate control.

"You can have another team come in from the outside and say, 'We think we can make more of the business opportunities that this firm faces,' " says Clifford Smith, professor at the University of Rochester's Simon School of Business.

Even if no offer is on the table, a CEO knows that someone backed by big money might be plotting an alternative vision for the firm.

By Challenger's count, 1,478 top executives in the US left their jobs in 2006, whether by retiring, resigning, being fired, or being shoved aside in a merger. That exceeded previous highs of 1,322 in 2005 and 1,106 in 2000.

The consulting firm Booz Allen Hamilton has tallied the numbers a different way, taking a global view but focusing on just the biggest 2,500 firms. In a study released four weeks ago, it found:

•Globally, 357 CEOs at these large corporations left office in 2006, a 1.2 percent decrease from 2005.

•The number of CEOs leaving because of conflicts with the board has grown from 2 percent in 1995 to 11 percent between 2004 and 2006. Such boardroom power struggles have been particularly common in Europe.

•In 1995, one in eight departing CEOs was forced from office – in 2006, nearly one in three left involuntarily.

Despite all the job churn, the majority of corporate leaders get more than a season or two at the helm. The Booz Allen study finds that the average CEO tenure is nearly eight years.

And for all the burdens on their shoulders, CEOs are well paid.

"You can't have it both ways," Mr. Smith says. A high salary and lucrative stock-option plan "leads to high expectations on the part of the owners of the firm."

The private equity buyout trend has upped the ante for both CEO pay and performance. "On the whole, they're living a more comfortable life than they would if [the companies] were taken private," says Colin Blaydon, a private equity expert at the Tuck School of Business at Dartmouth College in Hanover, N.H.

But the rewards of success in private equity can be astronomical, he adds.

Private or public buyout offers often come at a premium of 20 percent or more above the current market value of public corporations. The News Corp. bid for Dow Jones is one prominent example.

Corporate directors, with an eye on these deals, are asking CEOs how they can boost shareholder value. "A lot of CEOs are getting those questions from the board and feeling the pressure," Mr. Blaydon says.