Aubrey Bout is a Managing Partner, and Perla Cuevas and Brian Wilby are Consultants at Pay Governance LLC. This post is based on their Pay Governance memorandum. Related research from the Program on Corporate Governance includes Executive Compensation as an Agency Problem and Pay without Performance: The Unfulfilled Promise of Executive Compensation both by Lucian A. Bebchuk and Jesse M. Fried; The Growth of Executive Pay by Lucian A. Bebchuk and Yaniv Grinstein; The CEO Pay Slice (discussed on the Forum here) by Lucian A. Bebchuk, Martijn Cremers, and Urs Peyer; and Paying for Long-Term Performance (discussed on the Forum here) by Lucian A. Bebchuk and Jesse M. Fried.
Executive Summary
- In 2022, median CEO actual total direct compensation (TDC)* among S&P 500 companies was flat, in line with a substantial decrease (-18%) in total shareholder return (TSR).
- Historical CEO pay increases have been supported by TSR; on average, annualized pay increases over last 10+ years have been ~8 points lower than TSR performance on a percentage basis.
- In 2023, although S&P 500 TSR rebounded +26%, actual bonus incentive payments will likely be down from 2022 (with variations by industry), with 2021 being the highest recent year for actual bonus incentive payments.
- In 2024, given continued uncertainty in the economy, we expect CEO actual and target TDC to increase in the low single digits.
- Performance-based share plans remain the most used long-term incentive (LTI) vehicle; some companies may continue to have challenges in setting long-term goals with the somewhat uncertain economic environment in 2024.
*TDC = sum of base salary, actual annual incentive/bonus paid and the grant date fair value of long-term incentive awards.