Dana Etra is Managing Director and Head of the Boston office at FW Cook, Paul Hodgson is Senior Advisor at ESGAUGE, and Matteo Tonello is Head of Benchmarking and Analytics at The Conference Board, Inc. This post is based on their FW Cook, ESGAUGE, and The Conference Board memorandum.
While boards need to prepare for increases in total executive compensation to ensure their companies remain competitive in the market for top leadership talent, they should also be mindful of stakeholder perception and their companies’ own long-term goals when designing compensation packages. This report documents trends and developments in senior management compensation at companies in the Russell 3000 and S&P 500 indexes.
Key Insights
- Despite significant market volatility, 2023 and early 2024 saw positive shareholder returns, reflecting a resilience that is likely to extend into 2025 and may lead to further increases in total executive compensation.
- Increases in stock awards significantly outpace those of non-equity incentive plans, potentially overemphasizing long-term equity growth at the expense of short-term corporate goals.
- Although stock options now only represent on average 10% of total CEO compensation, compensation committees need to be vigilant that awards do not lead to excessive risktaking or other opportunistic behaviors meant to temporarily boost their value at the time of vesting.
- Developing a more structured and transparent approach to allocating CEO perquisites can help mitigate potential reputational risks and align executive compensation with long-term shareholder value.
Economic Context
In 2023, as reported by The Conference Board, the post-COVID-19 pandemic US economy continued to improve: consumers had more purchasing power, businesses were investing more, and inflation was slowing.[1] The labor market was also strong, with the unemployment rate near historic lows.[2] GDP also grew despite negative forecasts for the year, with real GDP reaching a whopping 4.9% (annualized) by the third quarter.[3] A major contributor to this was manufacturing and construction investment, which grew significantly and in the third quarter was at its highest level since 1958. Job gains continued, though at a slower pace than in the prior two years, and the unemployment rate stayed below 4% for 22 months despite the fall in inflation owing to food, energy, and goods price rises slowing. In addition, real wages grew by about 0.8% for all workers and 1.1% for the four-fifths of workers in production and nonsupervisory positions. Total shareholder return (TSR) in the Russell 3000 was 26% in 2023, compared to negative 19.2% in 2022 and positive 25.66% in 2021.[4] There was a similar climb, drop, climb sequence for TSR in the S&P 500. |
Boards Should Consider the Wider Implications of Continued Upward Adjustments in Executive Compensation, Particularly When Corporate Financial Performance Remains Strong and Market Conditions Stabilize
- After a slight dip recorded in last year’s proxy statements, total compensation for CEOs in the S&P 500 and the Russell 3000 rebounded in disclosure year 2024—with the strongest recovery reported among larger companies. Compensation committees should not only ensure companies can remain competitive in attracting and retaining top-tier leadership talent but also safeguard the alignment between compensation and evolving shareholder expectations by selecting measurable and clearly defined performance metrics.
According to 2024 disclosure documents, median total CEO compensation (excluding changes in pension value) was $15.5 million in the S&P 500, up from $14.4 million and $14.5 million reported the prior year and in 2022, and $12.6 million in 2021. The equivalent figures for the Russell 3000 were $6.1 million (2024 disclosure year), $5.8 million (2023), $6.6 million (2022), and $4.9 million (2021). These changes indicate a generally positive relationship between CEO pay and companies’ TSR which climbed in 2023 after the severe equity market underperformance the previous year. However, the 2022 dip in CEO compensation (reported in 2023 disclosure) was more pronounced in the Russell 3000, while the rebound effect was more prominent among S&P 500 companies.
Between 2023 and 2024 median base salary rose by 1.2% and 4% in the S&P 500 and Russell 3000, respectively, while the equivalent rises in median non-equity incentive plans (NEIPs) were 2.5% and 3.4%, and for stock options 12.3% and 3.6%. Equivalent increases for time-restricted stock awards were 7.1% and 3.7%, while for performance-related stock it was 7.5%, and 9.1%. This indicates that increases in the incentive portion of pay are clearly the drivers in the increase in total compensation.
Largely driven by increased stock prices during the period, between 2014 and 2024 total CEO compensation has grown 81.7% in the S&P 500 and 82.1% in the Russell 3000. Between 2023 and 2024 median total compensation increased by 8.1% and 4.6%, respectively, with slightly lower increases if the amount for increase in pension value is excluded. This trend reflects a long-term pattern whereby executive pay rises at a much faster rate than the average worker’s compensation, particularly in response to strong corporate performance and competitive pressures to retain top talent.
The Russell 3000 data breakdown shows that total CEO compensation changes differed significantly from sector to sector and not all sectors reported increases. The sectors that reported year-on-year decreases were consumer staples (down 2.6%). communications services (down 5.5%), and materials (down 14.6%). Similarly, the company size analysis revealed meaningful discrepancies, and increases were generally higher for larger companies by revenue. In fact, at the smallest companies (with revenues under $100 million), total CEO pay fell, while at those with revenues between $25 billion and $49.9 billion it rose by 22.2% at the median. By asset value, there were high increases for both the smallest and largest companies and pay drops for those in the middle.
According to 2024 proxy statements, in the S&P 500 women CEOs earned $16.4 million at the median compared to $15.6 million for their men counterparts. In the Russell 3000, women CEOs earned $6.7 million at the median, compared to $6.1 million for men. These numbers may be explained by the relatively small size of the women CEO sample: there are only 40 women CEOs in the S&P 500 (or 7.9% of CEOs on the index) and only 209 in the Russell 3000 (6.9%).
According to 2024 proxy disclosures, in addition to CEO compensation, CEO-to-medianemployee pay ratio has also risen to 191:1 in the S&P 500 (with the median employee earning $81,000 annually) and to 85:1 in the Russell 3000 (with the median employee earning $78,000 annually). Those pay ratios were 158:1 and 70:1, respectively, in the 2018 disclosure.[5] However, many observers and practitioners continue to challenge the significance in compensation design of the mandated pay ratio disclosure, given the different compensation structures—while most employees receive salaries and annual cash bonuses, public company CEOs are largely paid in equity that may not vest or be sold long after its award date and at lower prices than its grant value.
How companies identify their median employee can also vary significantly, which further limits the usefulness of pay ratio disclosures to compensation committees (as well as investors evaluating the disclosure).[6] Companies must be transparent about the methodology used but are allowed to use statistical sampling or reasonable estimates to simplify their process. According to The Conference Board analysis, more than 65% of S&P 500 companies indicate that they use reasonable estimates, and more than one-third consider a de minimis exemption (designed to allow certain businesses with international workforces to exclude non-US employees from their analysis, particularly where including them would make the CEO pay ratio calculation disproportionately complex or costly).
CEO base salary was flat during the pandemic years (fiscal 2020 and 2021) but rose with the beginning of the recovery. In 2024 proxy statements reported a median base salary value of $1.3 million for S&P 500 companies (up 1.2% over the prior year’s disclosure) and $830,000 for Russell 3000 companies (up 4%). Since 2014, base salaries for US public company CEOs have risen by 16.2% in the S&P 500 and 18.9% in the Russell 3000.
It should be noted that guaranteed pay for CEOs—base salary—regularly makes up only 10– 20% of total compensation; all else is at risk. Incentive pay, both cash bonuses and performance-related stock awards, can be zero or well above target, depending on company performance. It should also be noted that elements of compensation disclosed in company proxy statements—all equity-based compensation, for example—is an estimate of what compensation committees aim for. While the new pay vs. performance tables required in proxy statements disclose compensation actually paid—or “realized compensation,” as it is often referred to—compensation committees should consider additional compensation disclosure comparing “summary compensation table” disclosures against realized compensation figures over several years within the compensation discussion and analysis section, alongside a section explaining what led to the difference.
A more detailed breakdown by revenue and asset value confirms that base salary raises for CEOs in the largest companies lagged behind those in the smallest. By business sector, CEOs in consumer discretionary saw their median base salary unchanged compared to the prior year, while CEOs in utilities recorded the most substantial year-on-year increases (11.5%).
The use of discretionary bonuses has gradually declined over the years, and only 8.5% of S&P 500 and 18% of Russell 3000 companies reported granting these types of bonuses to CEOs in their 2024 proxy disclosure. Median discretionary bonus value, in those cases where it was granted, was $2.1 million in the S&P 500 (an 11.9% increase over the prior year’s disclosure) and $460,000 in the Russell 3000 (a 7.5% increase). When granted, discretionary bonuses are meant to reward exceptional performance or to provide more flexibility to compensation committees during uncertain economic circumstances, when setting hard short-term goals may prove more challenging and the executive may be demotivated for missing numerical goals. Median discretionary bonus increases were likely explained by such difficulties in the post- pandemic, high-inflation business environment.
Discretionary bonuses are most common among financials, with the number of CEOs in receipt in the triple digits—far exceeding any other industry. The highest median year-on-year increase (48.7%) was reported in industrials, while real estate had the lowest (down 34.7%). Communication services reported the highest median levels in 2024, at $1.4 million.
Similarly, cash awards are seldom used in long-term incentive (LTI) plans; their prevalence in CEO compensation packages has, in fact, decreased in recent years in both indexes—from 8.1% in 2018 to 5.3% in 2024 for S&P 500 companies, and from 4.1% to 3.4% in the Russell 3000. There were only 23 cases of reported LTI cash awards in 2024 S&P 500 proxy statements, for a median award value of $2.5 million and a year-on-year median value increase of 14.4%.
Boards Must Ensure That Compensation Packages Continue to Be Strategically Designed to Encourage a Blend of Immediate and Future-Oriented Executive Achievements
- Boards should critically reevaluate the balance between NEIPs and LTIs, as disparities in CEO compensation structures have become more pronounced. Whether performance-based or restricted, stock awards significantly outpace those of NEIP. Given the ongoing rise in stock market values, this trend could pose risks to maintaining a balanced approach to executive compensation. Compensation committees should consider aligning incentive mechanisms more closely with both immediate results and sustainable long-term corporate health, thereby fostering broader strategic objectives and enhancing shareholder value.
Although median NEIP payments grew slowly, for CEOs who received an increase, the average rise was significant, at around 40% for both indexes. The median value of NEIP payments fell for CEOs in energy, financials, information technology, materials, and real estate.
In the S&P 500, stock awards have come to represent more than half of total disclosed CEO compensation, highlighting compensation committees’ continuous efforts to ensure pay and performance alignment. In 2011, for the average company in the index, stock awards (including performance-based stock and restricted stock) accounted for 32.7% of the total CEO pay package value; they now represent 56.4% of the total, with 38.7% coming from the value of performance-based awards and 17.7% from restricted stock. In the Russell 3000, performance- based stock awards account for around the same proportion of pay as restricted stock awards, or around 23% each, indicating the more conservative approach to CEO pay structures among smaller companies, as well as the somewhat wider use of restricted stock as a long-term retention tool. The Russell 3000 business sector analysis of CEO compensation shows that communication services, financials, health care, and information technology are the only sectors where restricted stock represents a higher percentage of the total stock award value granted to the CEO than performance-based stock.
According to the 2024 proxy disclosure, the median grant-date value of performance-based awards was $6.6 million in the S&P 500 and $3 million in the Russell 3000, while the median value of time-based restricted stock ranged from $3.2 million in the S&P 500 to $1.8 million in the Russell 3000. In the S&P 500, at the 90th percentile, the grant-date value of performance- based awards was as high as $14.6 million; in the Russell 3000, it was $9 million.
Compared to the previous year’s disclosure, the median grant-date value of performance-based stock awards grew at a similar rate in both indexes (ranging from 7.5% in the S&P 500 to 9.1% in the Russell 3000). As smaller companies become more accustomed to setting long-term performance targets and using performance-based stock awards, this equity incentive vehicle has grown faster than restricted stock awards in the Russell 3000, at over double the pace (9.1% and 3.7%, respectively). Overall, the 10-year stock award value increase was 119.6% in the S&P 500 and 132.6% in the Russell 3000. Among CEOs receiving year-on-year performance-based stock award value increases—almost two-thirds in the S&P 500—mean increases were substantial, at 45.6%.
Boards Should Reassess the Strategic Role That Stock Options Play in Executive Pay Structures
- If deployed correctly, stock options can contribute to aligning pay with long-term strategic goals and remain an effective tool in compensation design; for example, to promote increased firm productivity. Compensation committees considering the inclusion of stock options in incentive plans should first assess the strength of the company’s governance and risk oversight practices. Many concerns about opportunistic behavior can be mitigated by encouraging executives to hold stock options over longer periods before exercise.
Stock options continue their slow, inexorable decline in the compensation mix. They now stand at 10.4% of total CEO compensation value in the Russell 3000, down from 16% of total pay in 2011; and are even lower (9.8%) in the S&P 500, down from 18.3% over the same period. Nevertheless, compared to the prior year, the median grant-date fair value of stock options grew by 12.3% in the S&P 500 (to $3.4 million) and 3.6% in the Russell 3000 (to $2.1 million). In the 10-year value analysis, it has grown 40.3% in the S&P 500 and 101.7% in the Russell 3000.
The analysis of median values by business sectors reveals that the highest stock option awards go to CEOs in communication services ($3.8 million), health care ($2.6 million), and information technology ($2.3 million), whereas energy companies reported the lowest ($739,000).
It is worth noting that while stock options represent a much lower proportion of total CEO compensation than the past, they are still very commonly used in compensation design, especially in the S&P 500. According to 2024 proxy disclosure, just over half of CEOs in that index received cash and stock awards only, but more than 40% reported a compensation structure that includes a combination of cash, stock, and stock options (the latter figure was 49.7% in 2018 and may further decline as stock options continue to go out of favor). In the Russell 3000, by comparison, slightly less than one-quarter of CEOs receive incentives in the form of cash, stock, and stock options, while 60.3% receive just cash and stock awards.
Boards Should Regularly Evaluate the Rationale for and Transparency About CEO Perquisites
- The median value of perks in the S&P 500 has risen over 60% since 2011, to $237,000 in 2024. These numbers underscore the need for compensation committees to carefully assess corporate policies pertaining to certain executive benefits, verify their adherence to governance standards, and better explain their rationale to stakeholders. In particular, directors should be mindful that while corporate aircraft can be justified in multiple ways (e.g., personal security, business efficiency, avoiding the disruptions that high-profile individuals traveling with security details would impose on commercial operators), the allowance for personal use of these jets can also attract criticism of the media and be singled out by proxy advisors.[7]
The surge in perquisites is driven by specific benefits, such as the personal use of corporate aircraft. The practice of permitting CEOs to use corporate property for personal travel had virtually disappeared since the passage of the Dodd-Frank Act in 2010 and the adoption of more stringent recommendations by proxy advisors. But several businesses relaxed restrictions due to the health concerns that mass transportation posed during the pandemic.
While only 1.3% of Russell 3000 companies with revenue under $100 million grant this perk to their CEO (many of those businesses may not even own a corporate jet), the percentage grows steadily with corporate revenue, up to 75% of companies with annual revenue of $50 billion or higher. According to 2024 disclosure, the median value of this benefit alone is $144,407 in the S&P 500, representing about 40% of the total CEO perquisite median value. The personal use of corporate aircraft can be worth $650,000 for the CEO of companies with annual revenue of
$50 billion or higher in the 90th percentile, with several organizations in the group reporting values well above $1 million.
When examining overall CEO perquisite increases, it should be noted that substantial changes in year-on-year average value (e.g., 108% in the Russell 3000, for the 57.4% of the index companies that reported such an increase) is the result of major outliers that, as such, do not extensively move the median. In particular, Security and Exchange Commission (SEC) rules require companies to disclose under “Perquisites and All Other Compensation” all forms and types of compensation excluded from the other elements of proxy statements’ summary compensation table; and “all other compensation” may include severance payments, which can be substantial and have an outsized effect on the average increase.
The numbers on the median value of CEO perquisites and all other compensation tell two very different stories in the S&P 500 and the Russell 3000. In the latter, the value of perquisites has been quite steady since 2011, to around $50,000 at the median. However, among the larger companies in the S&P 500, in the same period, perquisites have grown by 64.6%, from $144,000 in the 2011 disclosure year to $237,000 in 2024. The most significant increase has taken place in the post-pandemic years, as S&P 500 companies’ 2022 disclosure reported a median value of CEO perquisites well below the $200,000 mark ($184,000). In each index, more than half of the examined companies disclosed an increase in the value of perquisites and all other compensation over the level reported in 2023 proxy statements, with an average year- on-year increase of 45.6% in the S&P 500 and 108.6% in the Russell 3000.
Endnotes
1US Consumer Confidence Increased Again in December, The Conference Board, December 20, 2023. See also Ten Charts That Explain the US Economy in 2023, The White House, December 19, 2023.(go back)
2Selcuk Eren, Payrolls Continue to Grow in December, The Conference Board, January 5, 2024.(go back)
3Erik Lundh, Q3 GDP Expands by an Unsustainable 4.9%, The Conference Board, October 26, 2023.(go back)
4Russell 3000 Total Return and S&P 500 Total Return, YChart, updated daily.(go back)
5Matteo Tonello, Paul Hodgson, and James F. Reda, CEO and Executive Compensation Practices: 2018 Edition, The Conference Board, October 11, 2018, p. 147.(go back)
6Wonjae Chang et al., Does Sensationalist Affect Executive Compensation? Evidence From Pay Ratio Disclosure Reform, Journal of Accounting Research Vol. 61, Issue 1, March 2023, pages 187-242.(go back)
7Proxy advisor ISS, in particular, considers the personal use of corporate jets an “excessive or extraordinary perquisite” and a “problematic pay element” requiring a case-by-case evaluation. See US: Compensation Policies (Frequently Asked Questions), ISS Governance, February 2, 2024.(go back)