CEO pay in the hard-hit U.S. home-building sector is high compared with most other industries, and a big chunk of the compensation is from annual bonuses that aren't tied to long-term performance, a new study has found.

The report from the corporate governance group at Moody's Investors Service comes as investors are closely scrutinizing pay practices at home builders such as Toll Brothers Inc, Beazer Homes USA Inc and Lennar Corp.

Builders have seen new-home sales plunge amid the real estate market turmoil, with house prices flat or falling as tighter credit markets make it more difficult for buyers to finance their purchases.

Critics say that while billions in shareholder value have been wiped out, executive pay in the sector is not fully reflecting the bad news. Debt holders, according to Moody's, are also concerned about CEO pay structures and their possible effects on a company's credit strength.

The Moody's Corp ratings unit analyzed pay at the 12 largest U.S. home builders it follows, based on company revenue. It found that average annual CEO pay at the builders totaled $14.2 million in 2006, compared with $8.6 million for similarly sized companies in other sectors.

Despite the recent downturn, pay packages remain high relative to most other industries, the study found.

The report said annual bonuses, which are typically linked to earnings results, made up the biggest chunk of total CEO compensation at building companies. On average, 48 percent of total 2006 CEO pay at builders was in the form of annual bonuses, compared with 27 percent at companies in other industries.

Our concern with large annual bonuses is that management may be motivated to focus on annual (and within that, quarterly) performance targets, rather than on long-term goals that ensure the companies' sustainability, the report said.

As for CEO pay based on long-term performance, the study said that builders hand out lots of stock options, which creates a focus on share price and encourages growth strategies that can be risky for debt investors.

Home builders definitely still rely heavily on the use of options, where other companies have started to pull back and mix it up a little more, with more focus on restricted shares and long-term incentive plans, said study author Drew Hambly, an assistant vice president on Moody's corporate governance team.

Investor activists such as labor union retirement funds have been on a push to reform pay practices at home builders and have filed numerous pay-related proxy ballot resolutions ahead of next year's annual meetings.

The Moody's report examined 2006 pay practices at Beazer, Centex Corp, D.R. Horton Inc, Hovnanian Enterprises Inc, KB Home, Lennar, MDC Holdings, NVR Inc, Pulte Homes, Ryland Group Inc, Standard Pacific Corp and Toll Brothers. Data for 2007 were not yet available.

Of these 12 companies, only five currently have investment-grade debt ratings -- D.R. Horton, MDC, NVR, Ryland and Toll, according to Moody's. The other companies are rated below investment grade.

Pay practices can be an element in determining a company's rating, but there are many other considerations, Hambly said.

(Editing by Lisa Von Ahn)