Proxy statements for publicly-held corporations will reveal four important trends in executive compensation, according to James A. Knight, a partner with SCA Consulting and an expert in the relationship between compensation and corporate performance.

The following patterns should be evident, Mr. Knight says: executive pay will break all records; there will be less linkage between pay and corporate operating performance, but an increased relationship with stock performance; expectations of future stock performance will be a driving factor in executive pay; and the use of stock options will increase, but that will be a double-edged sword.

SCA Consulting's Mr. Knight, the author of Value Based Management, a publication of McGraw-Hill, explains:

Pay will break records.

This year companies will announce executive pay that will break all records. This trend to greater pay for executives is being driven by the use of equity incentives and a strong stock market. Multi-hundred million pay packages will be commonplace, especially in technology companies. The gap between the CEO and other executives will get wider, and the gap between executives and all employees will get greater.

Pay or pay for performance.

This year the proxies will reveal more and more pay and less and less linkage between the pay executives receive and the operating performance of the companies they manage. This gap is driven by pay packages that reward stock price gains and not operating performance.

Expectations drive pay.

Investor expectations will drive pay packages. The higher the expectations for the companies' future growth and operating performance, the higher the value of the executive's stock options. Managing those expectations to make sure not to disappoint investors is becoming one of the key jobs of CEOs, especially of technology companies.

Everyone wants options, but they are a doubled edged sword.

The trend toward increasing use of stock options is growing. Employees several levels below senior management are asking for options because they see the stock market going higher and they want to participate. Companies are responding by granting more stock options to larger groups of employees. While the stock price is going up, everyone is happy; however, when the stock price declines, as it did with Bank One and Aon, for example, employees lose out and investors are unhappy.

"These trends are in part driven by the burgeoning dot-com economy, when people are scarce and capital is not," adds Robin A. Ferracone, chairman of SCA.

SCA Consulting specializes in aligning the interests of shareholders and managers