June 26, 2014
Analysis: Smaller Company CEOs Seek Greater Pay Gains
– Yelena Dickerson, ISS Corporate Services
With the peak of proxy filing season behind us, fiscal 2013 chief executive pay trends are coming into sharp focus: Median CEO pay was up again in 2013, with the median Russell 3000 company CEO realizing an 8.4 percent increase in total compensation compared with fiscal 2012. The sharpest median CEO pay increases were reserved for CEOs of smaller companies. While S&P 500 companies realized an increase of 3.6 percent, and their mid-cap S&P 400 CEO colleagues earned only a median 1.4 percent increase over 2012, CEOs of smaller companies fared much better. The median small-cap S&P 600 CEO took home 10.7 percent more in 2013, and the median CEO of non-S&P 1500 companies in the Russell 3000 realized a 9 percent increase.
In the area of performance-based compensation, 2013 was a pivotal year. For the first time, CEOs in the S&P 500 had more than half (53.1 percent) of their pay granted with performance strings attached. The figure represents a 5 percentage point increase from 2012, when performance-based compensation accounted for roughly 48 percent of total pay.
S&P 400 companies are not far behind, with more than 46 percent of their compensation performance-based, a lesser increase from 2012 but still on the rise. For purposes of this analysis plain vanilla options and SARs are excluded, while equity awards granted through performance stock and performance options, as well as cash awards granted through non-equity incentive compensation plans are included.
The use of equity compensation is also revealing some interesting trends. In 2013, for the first time in several years, S&P 500 CEOs had a smaller portion of their compensation delivered through equity. Instead, we are seeing a small shift toward more cash-based performance incentives. This may show that the cash versus equity composition of CEO pay is edging toward parity, with nearly two-thirds delivered in equity and the remainder in cash.