November 29, 2021
Three Key Predictions for Executive Pay
Compensation committees are again tackling setting executive pay under uncertain circumstances. Semler Brossy issued a brief memo on the three trends they expect for 2021 executive pay levels:
1. An overall increase in CEO pay in both the S&P 500 and Russell 3000 – and it looks like early indications are bearing this out: companies that have already disclosed 2021 pay levels are averaging a 9.3% increase in base salaries.
2. A growing variance in compensation between the top and bottom corporate performers – the sectors that did well during the pandemic should see larger increases in target pay levels and stronger incentive-pay outcomes.
3. An uptick in the prevalence of performance-based equity – last year, companies moved away from performance-based stock towards time-based vehicles given the uncertainty of the pandemic. Companies will likely return to having performance-based stock in their long-term incentive plans.
The memo also emphasizes that clear rationale should be provided in the proxy statement for special actions like one-time awards or discretionary payouts. We blogged previously about lower say-on-pay votes this year due to Covid-related pay actions – we’ll be on the lookout for how boards and companies incorporate this investor feedback as they set executive pay levels and prepare pay-related disclosures this year. Mark your calendars for our December 16th webcast, “Compensation Committee Responsiveness: How to Regain High Say-on-Pay Support.”
– Emily Sacks-Wilner