Report: Compensation Levels Mostly Unchanged Year-Over-Year, but Cash Compensation Lower and Partially Offset by Equity Opportunities

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Sep 15, 2021, 10:00 ET

NEW YORK, Sept. 15, 2021 /PRNewswire/ -- In 2020, amid the vast economic uncertainty from COVID-19, median total compensation for CEOs (excluding change in pension value) in the S&P 500 rose 2.3 percent and remained roughly flat for CEOs in the Russell 3000, according to a new report.

The Conference Board analysis also reveals that both indices saw decreases in median CEO base salary and annual bonuses. Median base salary declined 4.2 percent for the S&P 500 and 6.4 percent for the Russell 3000. While median annual bonuses generally increased across most business sectors, in aggregate, median bonuses declined by 5 percent for the S&P 500 and 4.1 percent for the Russell 3000, driven by a larger proportion of companies in sectors that saw decreases in bonuses. Equity opportunities (stock awards and stock options) were roughly flat for the S&P 500 and saw a slight 1 percent increase for the Russell 3000.

"With the elimination of the one-time pay cuts (typically in the form of base salary) instituted during the pandemic, 2021 pay levels will likely increase year-over-year in both indices," said Matteo Tonello, Managing Director of ESG Research at The Conference Board. "This trend will likely be even more pronounced for CEOs in the Russell 3000, since base salary comprises 22 percent of their overall pay, whereas it comprises just 10 percent for their S&P 500 colleagues."

Those insights and more are from the 2021 edition of CEO and Executive Compensation Practices in the Russell 3000 and S&P 500, which The Conference Board produced in collaboration with Semler Brossy and ESG data analytics firm ESGAUGE. The report documents trends and developments in senior management compensation at companies that filed their proxy statement between January 1 and June 30 of 2021. Findings from the new analysis include:

Median total compensation rises for S&P 500 CEOs, but stagnates for Russell 3000 CEOs

S&P 500: CEOs saw a 2.3 percent increase in median total compensation (excluding change in pension values).
Russell 3000: CEO median total compensation remained roughly flat, decreasing 0.1 percent.
Largest increases and decreases in median total compensation:

Increases: Communication Services, 27.5 percent; Utilities, 10.3 percent; Consumer Staples, 4.2 percent.
Decreases: IT, 6.6 percent; Financials, 6 percent; Energy, 1.7 percent.

Median CEO base salaries decline in both indices

Pandemic pay cuts: Due to factors such as liquidity preservation and management showing solidarity with employees, in 2020 median CEO base salaries declined in both indices:

S&P 500: Median CEO base salaries declined 4.2 percent.
Russell 3000: Median CEO base salaries declined 6.4 percent.

Notable exceptions: All but two sectors saw declines in median CEO base salaries:

Consumer Staples: Median CEO base salaries increased 1 percent.
Energy: Median CEO base salaries increased 0.3 percent.

Median CEO annual bonuses generally see double-digit increases

Widespread rise in bonuses: Of the sectors that saw an increase in median CEO bonuses in 2020, all but two—health care and IT—saw more than 10 percent increases. That far exceeds the low single-digit average increases in median CEO pay across sectors over the last decade.
The largest increase in annual bonuses: CEOs of Consumer Staples companies, up 40.3 percent.
The largest decrease in annual bonuses: CEOs of Real Estate companies, down 17.5 percent.

"Driven by the economic uncertainty from the pandemic, several companies adjusted their executives' annual incentive plans. In 2020, some businesses reset goals partway through the performance period based on updated projections, while others allowed for compensation committee discretion to determine payouts based on a holistic performance review. These and other actions allowed companies to provide a partial or above-target payout in a year where no bonus may have been earned, resulting in higher year-over-year bonus outcomes," said Paul Hodgson, Senior Advisor at ESGAUGE.

Mark Emanuel, a Managing Director at Semler Brossy, added: "Looking to 2021 and beyond, as companies revert to more standard annual incentive designs in place pre-pandemic, bonus outcomes will continue to vary by sector. Companies that performed unexpectedly well last year and saw large increases in executive bonuses may see more normalized results this year, particularly if goals for 2021 assume similarly strong performance levels and growth from 2020 results."

Stock options surge—and constitute more of total pay— for CEOs at larger companies

Stock options soar: For CEOs at Russell 3000 companies with revenues between $25 billion and $49.9 billion, the prevalence of stock options increased from 53.2 percent in the year prior to 67.7 percent.
A bigger portion of overall pay: CEOs at companies in this revenue category also saw an increased weighting in stock options as a percentage of their overall pay.

2019: Stock options represented 11.1 percent of CEO pay.
2020: Stock options represented 19.1 percent of CEO pay.

"Looking ahead, as companies move past the extreme uncertainty from last year, stock options are unlikely to be a primary long-term incentive vehicle for most companies," said Todd Sirras, a Managing Director at Semler Brossy. "Rather, executives can expect a rise in the prevalence of performance-based equity grants, as companies re-introduce this vehicle back into their long-term incentive plans."

Compensation is strongly correlated with revenue and weakens only when revenue exceeds $50 billion

In most revenue tiers, median CEO total pay positively correlates with company size: For example, median CEO total compensation in 2020 was approximately $2.3 million for Russell 3000 companies with revenues under $100 million and was $3.3 million for companies with revenues between $100 million and $999 million.
The notable exception: The increase in median CEO total compensation is smaller proportionately for companies with revenues exceeding $50 billion (approximately $19.9 million in compensation) compared to median CEO total compensation for companies with revenues between $25 billion and $49.9 billion (approximately $19.0 million in compensation).

"The positive correlation between revenue size and executive pay reinforces the importance of selecting similarly sized companies when developing a peer group used for benchmarking pay levels," said Olivia Tay, a Senior Consultant at Semler Brossy. "In cases where the peer group includes significantly larger companies, corporations should be prepared to provide the rationale for the inclusion of larger peers. More conservative positioning against a larger peer group can also help to minimize external scrutiny from investors."

To access and visualize the compensation data, the public can access an interactive online dashboard.

About The Conference Board ESG Center
The Conference Board ESG Center serves as a resource, platform, and partner to help Member companies address their priorities in corporate governance, sustainability, and citizenship.
www.conference-board.org/ESG

About The Conference Board
The Conference Board is the member-driven think tank that delivers trusted insights for what's ahead. Founded in 1916, we are a non-partisan, not-for-profit entity holding 501 (c) (3) tax-exempt status in the United States. www.conference-board.org

About Semler Brossy
Semler Brossy is a leading independent executive compensation consulting firm. We serve a broad cross-section of companies across industries, from the largest global corporations to smaller, privately held firms. We partner with Compensation Committees and management teams to develop and apply compensation solutions to support corporate strategy and ensure sound governance. Clients trust our experience and foresight to help them turn Complexity into Clarity in compensation and governance. www.semlerbrossy.com

About ESGAUGE
ESGAUGE is a data mining and analytics firm uniquely designed for the corporate practitioner and the professional service firm seeking customized information on U.S. public companies. It focuses on disclosure of environmental, social, and governance (ESG) practices such as executive and director compensation, board practices, CEO and NEO profiles, proxy voting and shareholder activism, and CSR/sustainability disclosure. Our clients include business corporations, asset management firms, compensation consultants, law firms, accounting and audit firms, and investment companies. We also partner on research projects with think tanks, academic institutions, and the media.

SOURCE The Conference Board