Alex Knowlton is a Senior Research Analyst at Equilar Inc. This post is based on an Equilar memorandum by Mr. Knowlton, Amit Batish, Courtney Yu, Elizabeth Carroll, Hailey Robbers, and Joseph Kieffer.
With Say on Pay now a regular part of the executive compensation landscape, companies have a clear understanding of how shareholders view chief executive pay. Since the implementation of Say on Pay in accordance with the enactment of Dodd-Frank, over three-fourths of large-cap companies have received at least 90% of shareholder approval, while chief executive officer (CEO) compensation has continued to increase with each passing year.
However, despite the overall increase in total CEO compensation, the composition of CEO compensation, especially equity, has seen updates to reflect the modern pay landscape. Say on Pay provides shareholders an outlet to voice opinions on CEO compensation, and companies, for the most part, listen. For example, compensation tied to specific performance goals became increasingly prevalent with each passing year, evidenced by almost 90% of Equilar 500 CEOs receiving an award tied to some performance metric in 2017. As awards have more often than not hinged upon some performance metric, time-based awards, specifically option awards, continually decreased in prevalence. Additionally, plan-based bonuses and performance incentives have seen a higher, widespread usage, while discretionary bonuses still remain few and far between.