Target CEO Compensation Up +7% Among 2017 Early Proxy Filers

Target CEO Compensation Up +7% Among 2017 Early Proxy Filers

May 17 2017

In a first look at CEO pay levels in 2016, target CEO total compensation among 100 early proxy filers grew +7% in 2016 to a median $7.7 million.  When actual annual bonus and long-term cash payouts are substituted for the target amounts, compensation growth equaled +6%.  Long-term incentive awards accounted for the majority of the increase.  The findings are based on our recent study of 100 companies with revenues greater than $1 billion filing proxies since January 1, 2017.

Annual Bonus
Annual bonus plans continued to payout above target levels in 2016, with the median bonus payout equaling 106% of target, a slight increase from 103% of target in 2015.  Target bonus levels increased +3% in 2016, to a median level of $1.5 million, while actual payouts increased +2%, to a median level of $1.7 million.  Profits increased +13% for the same group of companies.  This difference is likely driven by boards continuing to increase target annual performance goals year over year.

Paying for Performance
Bonuses provide the clearest link between pay and performance on an annual basis.  Among the 100 early filers, 67 companies increased profits in 2016, while profits decreased at the remaining 33 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 2016 paid bonuses equal to 110% of target, while companies with lower year-over-year net income paid bonuses equal to 100% of target.


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

  • Information Technology companies were the only companies with actual bonus payouts below target (98%)
    • Largest observed year over year decrease in payout as a percent of target
  • Energy companies continue to pay the highest bonuses as a percent of target (140%)
  • Health Care companies had the largest one-year increase in bonus payouts as a percent of target (+13%)

Total Compensation
Long-term incentive awards, which includes equity grants and long-term performance cash plans, drove the majority of increases in compensation observed in 2016.

1-Year CEO Total Compensation Growth (%)
2016 Median ($)
Base Salary Annual Bonus Long-Term
Incentives
Total
Compensation
Target +1%
$1 million
+3%
$1.5 million
+5%
$4.8 million
+7%
$7.7 million
Actual +2%
$1.7 million
+4%
$4.7 million
+6%
$8.1 million

Note: Medians are not additive

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

Target Pay Mix
CEO compensation continues to be delivered predominately via long-term incentive awards such as stock options, restricted stock, performance shares, and long-term cash performance plans.  In 2016, long-term incentives represented 62% of CEO compensation.  Annual bonuses comprised 22% of CEO compensation and base salaries, represented as fixed compensation in the chart on the right, accounted for the remaining 16% 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:

  • Energy companies delivered the highest percent of total compensation via long-term incentive awards (74%)
    • Financials had the lowest (49%)
  • Consumer Discretionary companies delivered the highest percent of total compensation in annual bonus (29%)
    • Energy companies had the lowest (14%)
  • Financials delivered the highest percent of total compensation in base salary (24%)
    • Information technology companies had the lowest (11%)

Early Filer Companies
The 100 companies included in the study represent nine different industries, with Industrials (24) and Information Technology (18) companies being the most represented.  Fiscal 2016 revenues for the group ranged from $1 billion to $215.6 billion with a median value of $4.2 billion.  Fiscal year ends range from September 30 to December 31, with December 31 being the most common (48).

About the Study
The study analyzed compensation data for the most recent two years as disclosed in 100 proxy statements filed in 2017 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