April 18, 2019
CEOs Now Paid Mostly in Stock (And It’s Been a Boon)
– Liz Dunshee
Within the last decade, median pay for S&P 500 CEOs has increased by 50% – to $12.2 million – and median pay for S&P 600 CEOs has nearly doubled. That’s according to this blog posted on Tuesday by ISS Analytics (which also hints at the motivation behind the “pay ratio” law by pointing out that pay to median workers increased by 20% during the same period).
Of course, those CEO pay numbers are based on the “total compensation” figures in companies’ Summary Compensation Tables – which can overstate what executives are actually taking home. Specifically, a record portion of pay now comes in the form of stock, and the grant date fair value has been…more than pocket change. Here’s more detail:
Increases in compensation are primarily driven by greater portions of pay paid in stock. So far in pay fiscal year 2018, the average stock grant to S&P 500 CEOs amounts to $7.2 million, compared to $3 million in pay fiscal year 2009. Stock-based compensation continues to increase, while the aggregate of all other components of pay remains relatively unchanged.
In fiscal year pay 2018, stock-based compensation comprises the majority of CEO pay at S&P 500 and S&P 400 companies for the first time. The trend is the same for smaller companies with stock-based compensation reaching 49 percent and 42 percent of total CEO pay for S&P 600 companies and Russell non-S&P 1500 companies, respectively.
Coinciding with these increases, the blog notes that there’s also been a big shift to performance-based compensation for both equity & cash awards. Even with recent changes to Internal Revenue Code Section 162(m), the percentage of total compensation that was performance-based increased to 58% last year (compared to 34% in 2009). TSR, earnings & returns are the most popular metrics.
While the shift to stock-based compensation has worked to the benefit of most executives as the market has climbed, there’s still a possibility that it will be a double-edged sword. I’ve blogged that now’s the time to recession-proof your compensation plans – and these stats really drive that point home.