REDWOOD CITY, CA (June 15, 2016)—More than half of equity compensation awarded to S&P 500 CEOs in 2015 was based on performance, according to a new report from Equilar, increasing from about one-third in 2011.
In the past five years, the percentage of median CEO equity pay—i.e. compensation awarded via stock and options—tied to company performance goals has increased from 31.5% to 51.6%. The largest shift occurred from 2011 to 2012, notably after the SEC mandated an investor advisory vote on executive compensation—otherwise known as Say on Pay—and has ticked up slightly since then.
“CEO pay is increasingly at-risk, and variable components dependent on meeting or exceeding performance goals now comprise a larger share than they once did,” said Matthew Goforth, research and content specialist for Equilar and managing editor of the Equilar CEO Pay Trends 2016 report. “Pay that is fixed, or dependent only on the CEO’s continued employment, has not vanished but now makes up a much smaller percentage of total compensation than in past years.”
Compensation amounts reported in annual proxy statements reflect the value of stock and options awards at the date they were granted, and because they often are based on performance goals over multiple years, it’s very possible that those dollar amounts will never be paid to executives.
The number of companies awarding performance pay overall further illustrates this trend. In 2011, 62.5% of S&P 500 companies offered some sort of performance award to their CEOs. By 2015, that figure had increased to more than 80%. Meanwhile, the prevalence of options awards has decreased significantly, down from 68.9% in 2011 to 54.2% in 2015.
“The more recent changes have been influenced by institutional advisory firms like ISS and Glass Lewis that believe options are not performance-based pay, and the demand by shareholders to build stronger link to company performance and incentive payouts,” said Gerard Leider, a partner with Meridian Compensation Partners, who provided independent commentary for Equilar’s report.
Overall, median CEO pay reported in proxy statements by S&P 500 companies increased from $10.3 million to $10.4 million, according to the Equilar report. That figure was 16.9% higher than 2011, when median reported CEO pay among this group of companies was $8.9 million.
About CEO Pay Trends 2016
Equilar’s CEO Pay Trends 2016 examines the compensation of CEOs at current S&P 500 companies, and tracks this data for those companies over the last five fiscal years. Only CEOs who served for their company’s entire fiscal year were included in the applicable study fiscal year in order to preclude pro-rating or projecting elements of compensation for the sake of comparison.
Total compensation is defined as the sum of summary compensation table (SCT) reported salary, bonus, non-equity incentive plan compensation, stock awards, option awards and all other compensation—change in pension value and nonqualified deferred compensation was excluded to omit changes in actuarial value. Meridian Compensation Partners offered independent commentary to provide color and context to nuances on how reported compensation awards are structured and eventually paid to CEOs.
Equilar is the #1 provider of executive data, collecting information on more than 140,000 executives and board members from thousands of public companies. Our cloud-based platforms organize executive data into easily digestible formats, delivering compensation benchmarking, corporate governance and shareholder engagement tools with accuracy and integrity. These platforms bring together companies, shareholders and advisors to inform better business decisions and drive exceptional results. Founded in 2000, Equilar is the trusted data provider for 70% of the Fortune 500, and is cited regularly by The New York Times, Bloomberg, Forbes, Associated Press, CNN Money, CNBC, The Wall Street Journal and other leading media outlets.
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