The Advisors' Blog

In a memo published last week, Compensation Advisory Partners analyzed how the CEO pay of 50 “early filers” compared to the companies’ financial results. The companies in CAP’s sample – which had fiscal years ending between August and October 2023 – spanned several sectors and reported revenues ranging from $1.4 billion to $383 billion (median revenues of $11.9 billion), and median fiscal-year-end market capitalization of $16.4 billion.

Overall, CAP found that year-over-year financial performance was flat, but median total CEO pay was up. However, that increase was primarily due to the grant date fair value of LTI awards that were made early in fiscal 2023, at a time when the overall market was high and companies were coming off strong 2022 performance. This was offset by a decline in median bonus payouts. Here’s more detail:

Approximately 50% of companies in our sample had an annual incentive payout that was at or above target in 2023 (median payout of 129% of target). These higher performing companies saw modest growth at median for revenue, EBIT and EPS growth, and had strong TSR performance. For companies with below target performance (median payout of 61% of target), median revenue growth was down slightly (-2.6%) while EBIT and EPS performance was down double digits (-15.6% and -11.4%, respectively). Median TSR increased for both groups. TSR was up significantly (+17.8%) for at or above target performers and up slightly (+2.3%) for below target performers.

In 2023, annual incentive payouts had a normal distribution with companies nearly evenly split in receiving payout either above or below target. This is a change from the prior two years when a majority of companies paid out at or above target. The distribution of payouts coupled with the median incentive payout around target suggests the difficulty in setting goals amid unpredictable macroeconomic factors.

The report goes on to discuss how some companies are incorporating metrics relating to a CEO’s individual performance, which I found especially interesting after reading about Boeing’s recent decision to reduce an element of executive pay in the name of “individual accountability” (although in Boeing’s case, the focus was on LTIs). Here’s what CAP found:

Approximately one-third of Early Filers incorporate individual performance in the annual incentive payout for the CEO. This means that the CEO’s payout as a percentage of target may be higher or lower than that of the corporate funding factor (i.e., the percentage at which the annual incentive funds based on company performance). 70% of companies in our sample provided a payout to the CEO that was +/-5 percentage points from the corporate funding factor in 2023.

Nearly 15% of companies reduced the CEO’s payout from the corporate funding factor in 2023, which is up from 2022 (4% of companies) and 2021 (7% of companies). However, the average reduction in payout was lower in 2023 than in prior years. On average, companies that lowered the CEO payout in 2023 reduced it by 30 percentage points compared to 39 points in 2022 and 102 points in 2021. The number of companies that increased the CEO’s payout by more than 5 points above the corporate funding factor was up slightly from last year (17% in 2023 vs. 11% in 2022) but down from 2021 (when it was 33%). However, the increase in payout was more modest, with companies raising the CEO’s payout by, on average, 15 points in 2023 compared to 20 points in 2022 and 34 points in 2021.

– Liz Dunshee