Early Proxy Filers: Target CEO Compensation Increased 4.8% in 2020
Chief Executive Officer (“CEO”) compensation increased +4.8% in 2020 at median among 2021 early proxy filers. Median target total compensation (excluding change in pension values and perquisites) among the 100 CEOs reviewed equaled $9.1 million in 2020. These findings are based on Steven Hall & Partners’ recent study of 100 companies with revenues greater than $1 billion which filed proxies on or after January 1, 2021.
Target total compensation increased for 75 CEOs, decreased for 24 CEOs, and remained even for one CEO. Increases and decreases in total compensation were largely driven by changes in long-term incentive (“LTI”) grant values. Overall, LTI award values increased by +6.6% at median.
Target Pay Mix
In 2020, long-term incentives represented about two-thirds of total target CEO compensation. This was followed in value by target bonuses (21%) and base salaries (13%). CEO target pay mix has remained consistent over the last several years with the majority emphasis put on delivering value through long-term incentives that executives may realize over multi-year periods.
Annual Bonus Payouts
Bonuses provide the clearest link between pay and performance on an annual basis. In 2020, at median, annual bonus plans paid out at target levels overall and annual bonus payouts increased by +1.0%. This despite the challenges many companies faced during the year in the face of the COVID-19 pandemic.
However, these observations result from two starkly contrasting stories of annual performance. Among CEOs who received a higher annual bonus payout for 2020 compared to 2019 (49 executives), those CEOs had their annual bonus plans pay out at 117.0% of target at median. Those CEOs also saw their annual bonus payout increase by +45.0% at median compared to 2019. Meanwhile, among CEOs who received a lower annual bonus payout for 2020 (41 executives), their annual bonus plans only paid out at 75.0% of target at median and their annual bonus payouts decreased by -39.7% at median compared to 2019.
Additionally, five CEOs had flat annual bonus payouts, the same as 2019 payouts, and five did not receive an annual bonus payout for 2019 and so growth was not determined.
Annual Bonus Targets
Overall, at median, annual bonus target values increased by +2.6% for 2020. Annual bonus target as a percent of base salary was 150% at median, consistent with 2019 targets.
Among industries for which the sample was five or greater companies, Financials companies targeted bonus payments at the highest levels (179% of base salary, at median) while Industrials companies targeted bonus payments at the lowest levels (119% of base salary, at median). However, the largest growth in target bonus values was seen among Materials (+6.3%) and Health Care (+4.3%) companies. No industry had a decline in target bonus values for 2020 at median, although Financials companies did remain flat compared to 2019.
As mentioned above, the increases and decreases in total compensation observed were largely driven by changes in target long-term incentive grant values.
Target LTI values increased for 71 CEOs, decreased for 26 CEOs, and remained consistent year-over-year for three CEOs. Of those three, two CEOs did not receive any LTI awards in 2019 or 2020.
The distribution of percentage changes to target LTI grant values from 2019 to 2020 is shown below. While the largest portion of companies made modest increases to LTI grant values of +0% to +5%, over half of the sample (54 companies) made increases of +5% or more, with almost a third of companies (31 companies) making increases of +15% or more.