The Advisors' Blog

This recent Pay Governance memo confirmed that now — well over 10 years into mandatory say-on-pay votes — increased shareholder democracy on executive compensation has still not had the effect of lowering CEO pay. (At least not to the extent intended. A recent academic study suggests that the say-on-pay vote lowers total CEO pay levels by about 6.6%.) Using a constant company sample of 166 companies in the S&P 500 over 2008 to 2022, Pay Governance research has shown that:

– CEO pay has continued to increase post-Dodd-Frank
– CEO pay increases were reflective of a 64% increase in revenue and more than doubling of market cap for a constant sample of S&P 500 companies over the same period

That said, there has been a significant shift in pay practices and focus on quantum of pay at certain levels:

– There’s a continued trend of pay compression at large public companies with significantly lower increases in pay at the 90th percentile than other percentiles (before SOP, CEO pay at the 90th percentile was 4.5 times the 10th percentile; more recently, that ratio is 2.5)
– S&P 500 CEO pay is significantly more performance-based (90% of CEO pay is now delivered in annual or long-term incentives versus 84% before SOP)
– The mix of long-term incentives has shifted significantly towards PSUs (from 34% before SOP to 63% today)

The article argues that the strong, typically 90+ percent average support for say-on-pay proposals validates the historical increases and today’s performance-based pay model.

Programming Note: I can’t believe I’m saying this, but this is our final post on The Advisors’ Blog in 2024 (barring any major developments)! Thanks for your participation in our sites this year – we couldn’t do this without you! I’m so thankful for this professional community, and my New Year’s wish for us all is more community — personal and professional! I hope I get to see many of you in 2025! Happy Holidays!

– Meredith Ervine