The Advisors' Blog

Here’s an interesting analysis from Semler Brossy, looking at 12-year trends in CEO bonus payouts. It shows how dollar values have shifted (more modestly than I expected!) – as well as trends in payouts compared to targets. Here are the key findings:

• Actual bonus payouts to CEOs increased 3% annually, in line with target bonus increases over time.

• Bonus payouts generally tracked with real GDP growth, especially during the COVID period (2020-2021). The payouts are reflected both the broader macroeconomic state (e.g., growth, compression) and how goals were calibrated in response

• During typical cycles, average payouts were usually in the 110% to 120% range, reflecting steady economic growth and consistent goal attainment

• During COVID (2020): payouts shifted closer to 100% of target as companies faced operational uncertainty and economic contraction

• COVID Aftermath (2021): Payouts were heavily concentrated in the above 175% range in 2021, driven by companies down goaling in 2020 and significant economic rebound

• Macroeconomic trends and company-level revenue growth are highly correlated with bonus payouts. It is one of the most commonly used annual incentive metrics and is more comparable across the S&P 500 than other financial and operational measures, which often require greater contextual interpretation

Lastly, when it comes to the impact of big macroeconomic disruptions on bonus payouts, the data appears to show that “this too shall pass”:

• Payout levels tend to compress toward target in downturns (2020) and expand toward maximum in periods of strong growth (2021), reflecting the sensitivity of bonus programs to operating performance. Although outside the scope of this dataset, we have observed similar payout patterns during prior disruptive cycles, including the dot-com downturn and the 2008–2009 financial crisis

• Following periods of disruption, companies typically require time to recalibrate annual performance targets; however, payout levels tend to normalize relatively quickly (2022)

– Liz Dunshee