According to a recent analysis of company proxy disclosures by advisory firm WTW, total pay for CEOs will increase by only 2.7% in 2022, compared to 18.3% in 2021.
Furthermore, from 21% in 2021 to 42% in 2022, the number of CEOs who received a total pay cut more than doubled. Base salary, actual annual and long-term cash bonuses, the value of long-term incentives such as stock options, the value of perquisites, earnings from deferred compensation, and the change in the value of executive pensions were all included in the analysis.
Annual bonuses were the hardest hit, falling 2.5% in 2022 after rising 36.8% the previous year. Long-term incentives increased by 10%, compared to 44% in 2021, and CEO salaries increased by 3.1%, compared to an unchanged salary rate in 2021.
The volatility of CEO pay has become a major topic of discussion and analysis. One notable trend is the variation in CEO compensation packages, which is frequently influenced by factors such as company performance, economic conditions, and industry dynamics.
CEO pay tends to rise significantly during times of economic prosperity and strong corporate performance, sometimes reaching staggering levels. However, during economic downturns or when companies face financial challenges, there is increased scrutiny on executive compensation, potentially leading to pay cuts or changes in pay structures.
This volatility in CEO pay reflects the fluid nature of executive remuneration, which can be influenced by external factors such as shareholder activism, public sentiment, and evolving corporate governance practices. But looking at the recent slowdown in the CEO pay increase, there are some additional data and research that must be pondered.
According to WTW, the slowing of total pay increases is a good sign. “Given the stock market’s performance and lingering economic uncertainties, the fact that annual and long-term incentives weakened last year demonstrates that the pay-for-performance model is working at most companies,” said Don Delves, WTW North America’s executive compensation leader, in a press release.
According to the firm, the slowdown was caused by stock market performance and lingering economic uncertainties, which were primarily reflected in a decrease in annual bonuses and slower growth in long-term incentives.
In recent years, shareholder groups have been outraged by excessive CEO pay. According to a 2022 analysis conducted by As You Sow, a shareholder advocacy nonprofit that pays close attention to CEO pay, CEO compensation does not correlate with past stock return performance; rather, companies with the 100 most overpaid CEOs underperformed the equal-weighted average S&P 500 company for each year since 2015.
In a report released on 16th February 2023, As You Sow found that total pay for CEOs continues to rise, in contrast to WTW’s findings. While WTW cast a wider net, examining 450 S&P 1500 companies, As You Sow focused on the S&P 500. Furthermore, WTW’s analysis is based on more recent disclosures — proxies disclosing 2022 data that were filed by the end of April.
In addition to finding that pay increases are slowing, WTW discovered that companies are increasingly using ESG performance measures in annual incentive plans; 56% used such a measure in 2022, compared to 49% in 2021. WTW reports that while the use of ESG measures in long-term incentive plans remains low, there is growing interest in linking executive incentive awards to ESG measures.
“Many boards of directors see executive incentives as an effective way to hold CEOs and other corporate leaders accountable to meeting ESG goals they believe are most critical to business strategies, such as carbon emission reduction and diverse representation for management and the workforce,” WTW’s senior director for work & rewards Kenneth Kuk said.