Target CEO Compensation Up +7% Among 2016 Early Proxy Filers

Target CEO Compensation Up +7% Among 2016 Early Proxy Filers

April 5 2016

2016CEO_1In a first look at CEO pay levels in 2015, target CEO total compensation among 100 early proxy filers grew +7% in 2015 to a median $6.5 million. When actual annual bonus and long-term cash payouts are substituted for the target amounts, compensation growth is reduced to +3%. The difference between target and actual was driven by a year-over-year decrease in annual bonus payouts as a percent of target. The findings are based on our recent study of 100 companies with revenues greater than $1 billion filing proxies since January 1, 2016.

Annual Bonus
Actual bonus payments were down -3% in 2015 compared to 2014, but were still above target amounts. In 2015, the median bonus payout equaled 105% of target, a decrease from 2014, when bonuses for the same group of CEOs equaled 118% of target. While bonus payouts as a percent of target decreased in 2015, profits increased +7%, which leads us to hypothesize that more rigorous goal setting in 2015 versus 2014 is the main reason for the decrease.

2016CEO_2Paying for Performance
Bonuses provide the clearest link between pay and performance on an annual basis. Among the 100 early filers, 58 companies increased profits in 2015, while profits decreased at the remaining 42 companies. Generally, annual bonuses are based on a variety of different financial criteria, but earnings are by far the most prevalent and heavily weighted metric for corporate CEO bonus plans. Among the early filers, companies with increased net income in 2015 paid bonuses equal to 112% of target, while companies with lower year-over-year net income paid bonuses equal to 99% of target.


Median Annual Bonus by Industry
Among the industries represented by five or more companies:

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  • Industrials were the only companies with actual bonus payouts below target (85%)
    • All industries paid above target bonuses in 2014
  • Energy companies continue to pay the highest bonuses as a percent of target (160%)
  • Industrial and information technology companies had the largest one-year decrease in bonus payouts as a percent of target (-24%)


Total Compensation
Among the CEOs of the first 100 early filers, base salaries are up +3%, actual bonus payouts decreased -3% while target bonuses were up +4% and long-term incentive awards (equity awards and long-term cash incentives), on both an target and actual basis, increased +5%.

1-Year CEO Total Compensation Growth (%)

2015 Median ($)

  Base Salary Annual Bonus Long-Term Incentives Total Compensation
Target +3%

$982,000

+4%

$1.2 million

+5%

$4.1 million

+7%

$6.5 million

Actual -3%

$1.4 million

+5%

$4.3 million

+3%

$6.8 million

Note: Medians are not additive


Total Compensation by Industry
Among the industries represented by five or more companies:

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Target Pay Mix
2016CEO_5The majority of CEO compensation continues to be delivered via long-term incentive awards such as stock options, restricted stock and performance shares. In 2015, long-term incentive awards represented 61% of CEO compensation. Annual bonuses rank second, comprising 22% of CEO compensation. Base salaries, represented as fixed compensation in the chart on the right, accounted for the remaining 17% of CEO total compensation. CEO pay mix has stayed fairly consistent over the last several years.


Target Pay Mix by Industry
Among the industries represented by more than five companies: 

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  • Energy companies delivered the highest percent of total compensation via long-term incentive awards (71%)
    • Financials had the lowest (50%)
  • Financials delivered the highest percent of total compensation in annual bonus (36%)
    • Energy companies had the lowest (14%)
  • Utilities delivered the highest percent of total compensation in base salary (23%)
    • Information technology companies had the lowest (11%)


Early Filer Companies
The 100 companies included in the study represent nine different industries, with Industrials (26) and Information Technology (21) companies being the most represented. Fiscal 2015 revenues for the group ranged from $1.1 billion to $233.7 billion with a median value of $3.1 billion. Fiscal year ends range from July 31 to December 31, with September 30 being the most common (48). 

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About the Study
The study analyzed compensation data for the most recent two years as disclosed in 100 proxy statements filed in 2016 for companies with revenues greater than $1 billion and CEOs with a minimum tenure of two years. For additional details regarding the study please contact Steven Hall Jr. at 212-488-5400 or sehall@shallpartners.com.

About Steven Hall & Partners
Steven Hall & Partners is an independent executive compensation consulting firm serving as outside counsel to boards, compensation committees and management. The firm focuses solely on executive compensation, director remuneration and related corporate governance matters.

www.shallpartners.com