Cash is Not King – CEO Annual Pay Raises Hit New Low with Smallest Increase in 6 Years
May 4, 2017
- CEO Salaries and Bonuses Remain Flat -
- Boards Opt for Longer-Term Incentives -
- CEOs Face Increased Pressure to Meet Organizational Goals -
LOS ANGELES, May 4, 2017 — In determining CEO compensation at top public companies in 2016, Boards turned to longer-term CEO compensation vehicles instead of more immediate salary and bonus increases to reward top leaders, according to Korn Ferry Hay Group’s 10th Annual CEO Compensation study.
The study, which is conducted by the Hay Group division of Korn Ferry (NYSE: KFY), examined all forms of pay for CEOs at the 300 largest public companies with revenues of at least $9 billion in fiscal year 2016 that filed their proxy statements between May 1, 2016 and April 30, 2017.
Overall, total direct compensation increased 4.2 percent to $12.5 million. However, median annual cash compensation for CEOs was flat at $3.5 million, including minimal base salary growth of 0.8 percent to $1.3 million and annual bonus payments remaining flat at $2.3 million. Stock awards are up 4.3 percent to $6.3 million and total long-term incentives grew 4.4 percent to a median value of $8.8 million.
The smallest increase in the past 6 years in CEO annual salary growth corresponded to a relatively good total shareholder (TSR) return of 12 percent, compared to a TSR of 0.1 percent return in 2015. Total revenue was slightly up at 1.6 percent and net income growth among the companies was 2.6 percent.
“Compensation committees recognize the need to reward and retain high-performing CEOs, but with more pressure on year-over-year financial goals and increased scrutiny from governance watchdogs, investors and the media, it’s hard for committees to justify increases in salaries and bonuses,” said Irv Becker, Korn Ferry senior client partner and North American leader of Executive Pay & Governance. “Today, CEOs are being held to incremental goal setting and increased pressure to perform, and instead of immediate rewards, Boards are turning to longer-term, performance-based incentives.”
The emphasis on performance awards as part of the long-term incentive mix increased to its highest level with performance awards accounting for 54.7 percent, followed by restricted stock at 22.7 percent and options at 22.6 percent.
“It’s an easy decision for Boards to reward CEOs with performance equity,” said Becker. “It incentivizes CEOs to focus on longer-term results and is a positive way to reward CEOs while aligning with shareholders’ interests and giving them confidence that the CEO is focusing on both current and future performance.”
About the Korn Ferry Hay Group 2016 CEO compensation study
The 2016 study focused on the primary elements of compensation for CEOs of the 300 largest public companies by revenue to file their final definitive proxy statements between May 1, 2016 and April 30, 2017.
Note: all dollar figures are medians and are calculated independently. Medians should not be added to create another data point.
About Korn Ferry
Korn Ferry is the preeminent global people and organizational advisory firm. We help leaders, organizations, and societies succeed by releasing the full power and potential of people. Our nearly 7,000 colleagues deliver services through our Executive Search, Hay Group and Futurestep divisions.