The Advisors' Blog

After a significant increase in 2023, this Pay Governance alert analyzing historical trends in CEO actual total direct compensation (TDC) shows that CEO pay moderated a bit in 2024, increasing by 5%, at median, over the prior year, which the alert describes as modest given TSR performance during the year.

TSR performance remained exceptionally strong for the second consecutive year. This sustained TSR performance reflects a robust equity market environment and reinforces the continued recovery from the volatility and negative TSR experienced in 2022. While CEO actual TDC increases were positive, this level of growth is more modest than the increases typically observed during periods of elevated TSR performance. One likely contributor to the pace of pay growth in 2024 is the substantial +14% increase in CEO actual TDC in 2023, which followed the rebound in market performance after 2022. The compensation actions taken in 2024 reflect a shift back towards more normalized year-over-year adjustments after a year of significant upward adjustment.

Here’s the alert’s description of longer-term trend data:

From 2010 through 2023, S&P 500 CEO actual TDC increased steadily, generally in line with TSR cycles. Actual TDC growth was modest in the early 2010s, accelerated during strong equity markets from 2017 to 2019, remained flat in 2020 amid COVID-related disruption, and increased more meaningfully from 2021 to 2023 as TSR and company performance rebounded.

CEO actual TDC outcomes have historically tracked S&P 500 TSR performance. Median CEO actual TDC reached approximately $16.1M in 2023, reflecting a 14% year-over-year increase supported by strong S&P 500 TSR of approximately 26%. In 2024, median CEO actual TDC grew at a more moderate pace, rising by only 5%, from $16.1M to approximately $17M (Figure 1).

In terms of LTI, while Pay Governance expects performance shares to continue to dominate CEO pay, they also anticipate that use of PSUs has peaked, given ISS’s recent policy change that looks more favorably on extended time-vested equity.

– Meredith Ervine