The portion of executive compensation tied to long-term equity awards increased in 2020, and despite the volatility of the stock market as COVID hit, the broad increases in the second half of the year had a substantial impact on the value of CEO compensation, according to Willis Towers Watson’s
report on CEO pay at S&P 1500 firms in 2021. According to the consulting firm’s analysis, the median total earned compensation increased for S&P 1500 CEOs by 3.9% in 2020.
The report provides a deep exploration of target and earned pay across market capitalizations and includes the following highlights:
- Long-term incentives represent 61% of the value of the S&P 1500 CEO pay mix with annual incentives accounting for 20%.
- Healthcare has the largest percentage of LTI – 68%
- Consumer discretionary has the smallest (but still over half) – 56%
- The S&P 500 LTI percentage is 69% while midcap companies (S&P 400) are slightly lower at 60%. Small cap companies (S&P 600) have the smallest percentage of LTI – 54%.
- While the median target bonus value in the S&P 1500 increased 2.5%, the median payout declined by 1.6%.
- More than a third (36%) of S&P 500 companies have held CEO salaries flat for three years.
- While the median target annual incentive has held steady at 150% of base salary for S&P 500 companies, the target LTI has increased from 697% in 2018, to 726% in 2019, and 744% in 2020.
The report closes by presenting a graph comparing three-year TSR performance to three-year realizable pay. Interestingly, the highest performing companies (top third) saw realizable pay 37% higher than total direct compensation at grant date, with TSR at an 84% increase. On the other side, the bottom third of TSR performers saw realizable pay that was 20% lower than the grant date value while TSR declined by 25%. This indicates that pay and performance were aligned directionally, but swings in TSR are generally more extreme than commensurate changes in pay.
