Early CEO Compensation and PvP Disclosure Trends From the 2023 Proxy Season

Amit Batish is Director of Content at Equilar, Inc. This post is based on an Equilar memorandum by Mr. Batish and Courtney Yu. Related research from the Program on Corporate Governance includes The Growth of Executive Pay by Lucian Bebchuk and Yaniv Grinstein; Stealth Compensation via Retirement Benefits Lucian Bebchuk and Jesse M. Fried; and Politics and gender in the executive suite (discussed on the Forum here) by Alma Cohen, Moshe Hazan, and David Weiss.

The 2023 proxy season is officially underway. Public companies based in the United States will file their proxy statements (DEF14A), highlighting the various components of their governance policies, over the next few months. Among the most prominent and highly discussed issues featured in proxies are those related to executive compensation. Of course, this year’s proxy season is the first to feature newly required Pay Versus Performance (PvP) disclosures following the SEC’s August 2022 announcement.

In this post, Equilar analyzes a sample of early proxies filed by Equilar 500 companies—the 500 largest U.S. public companies by revenue—as of March 14, 2023. While several thousands more proxy statements will be filed in the months to come, the purpose of this study is to offer a preview of executive compensation pay packages from 2022 and key trends to watch for this proxy season, including those around PvP disclosures.

CEO Pay Continues to Surge

From 2018 to 2020, CEO pay remained relatively flat around $12 million at the median for Equilar 500 companies. However, in 2021, compensation jumped 18.3% to $14.2 million. The significant bump in 2021 could be credited to the fact that many companies elected to reward their CEOs for guiding them through the turbulence of the COVID-19 pandemic in the form of bonuses. Additionally, 2021 was a strong market year prior to any inflation and recession concerns.

Nevertheless, the uptick in compensation for the top executive officer continued in 2022, according to early indications. Among the sample of 154 Equilar 500 CEOs observed in this study, median CEO compensation increased by 7.7% to $15.3 million in 2022. In this era of pay for performance, it comes as no surprise that the majority of CEO compensation comes in the form of stock awards.

Figure 1: CEO Total Direct Compensation (Equilar 500)

As compensation for CEOs accelerated, the CEO Pay Ratio has also ballooned. While remaining steady from 2018 to 2020, the CEO Pay Ratio spiked by 10.4% to 202:1 at Equilar 500 companies in 2021. Among the early filers in 2023 proxies, the ratio saw even greater growth in 2022, increasing by 24.5% to 251.5:1—indicating that CEO compensation is increasing at a much faster rate than pay for the median employee. In fact, pay for the median Equilar 500 actually declined by 13.7% from $69,701 in 2021 to $60,135 in 2022. While the CEO Pay Ratio is hardly a factor in investor voting decisions and Say on Pay, the inflation of the figure could draw the ire from consumers, the media and other relevant stakeholders—something to keep an eye on in 2023.

Figure 2: CEO Pay Ratio (Equilar 500)

Women Are Outnumbered But Not Outearned

On the topic of equality, Equilar 500 CEO compensation by gender has fluctuated during the study period. However, women have outearned their male counterparts in three of the five years: 2018, 2020 and thus far for 2022. The early results for 2022 show that women earned 5.4% more than men, $15.7 million compared to $14.9 million. The only year of the study when pay was even was 2019 when both men and women were awarded $12.2 million at the median.

Among companies that have reported in 2023, just under 10% of CEOs are women, significantly higher than the average from the study period. Nevertheless, income equality will continue to be an area of focus during the ESG era, even at the top of an organization.

Figure 3: CEO Compensation by Gender (Equilar 500)

Early Signs Point to Income as the Leading Metric in First-Year PvP Disclosures

The first wave of proxies are also the first look at tabular and narrative PvP disclosures. The PvP rules require companies to disclose several different calculations and measures, including compensation actually paid (CAP), TSR figures for the target company and its peers, and the company-selected performance measure. According to the study, income is currently leading the way in prevalence as the top metric category of choice by far, with 56.8% of the 44* companies that featured a PvP disclosure selecting it as their top measure. The next most common metric is cash flow at 15.9% prevalence.

Equilar is also tracking the  various calculations and performance measures captured in PvP disclosures during the 2023 proxy season. The PvP Tracker highlights the 100 most recent disclosures in proxy filings.

Figure 4: PvP Company-Selected Measures (Equilar 500)

With the implementation of the new PvP disclosure requirements and the elevated levels of CEO compensation, this proxy season will certainly serve as an indicator for trends to come in executive compensation.

*New rules are for companies with fiscal year disclosures ending on or after December 16, 2022.

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