CEOs earned a median $2,958,000 with approximately 40% of the value coming from base salary and 60% from short-term incentives, according to a study released by Mercer on July 14.
The firm's latest analysis of compensation and benefits for CEOs at 240 companies in the S&P 500 shows that total cash compensation for CEOs rose 5% in 2013. As compensation was virtually flat in 2012, the increase reflects more robust improvement in revenue and EBIT says Mercer.
“Organizations are looking at executive compensation in comprehensive terms as they strive to balance the need to attract and retain proven talent in an increasingly complex, global environment while mitigating the risk that pay programs will be seen as excessive or inconsistent with their peers,” explains David Cross, partner with Mercer’s Executive Rewards practice,
Base Salaries Unchanged
As in 2012, over 50% of companies in the S&P 500 froze their CEO’s base salaries, which now stand at a median of $1,092,000. “This slower rate of growth is the result of Board decisions to shift marginal increases in compensation to performance-based vehicles,” said Cross. “This does not necessarily mean salaries won’t rise in the future, but that salary will become a smaller part of the compensation package relative to variable pay.”
The shrinking contribution of base salary to total direct compensation in 2013 continues a long-term trend. In 2011-2012, base salary comprised 14% of S&P 500 CEO salary; it now comprises 13%. The decrease is most notable in the smaller companies of the S&P 500 where the portion of base salary slid from 16% in 2011 to 15% in 2012 and 14% in 2013. For the largest S&P 500 companies, components of the S&P 100 Index, base salary remained relatively flat at 10% of total compensation for all three years.
Value of short-term incentives advances
Overall, 95% of S&P 500 CEOs earned a short-term incentive in 2013 compared to 94% in 2012 and 93% in 2011. This increase aligns with 96% of CEOs in the Other 400 earning them in 2013 (compared to 94% in 2012 and 93% in 2011).
Payouts for CEOs of S&P 100 companies were less favorable: 90% earned a short-term payout in 2013, below the 92% prevalence the prior two years. The median short-term payout was $1,868,000 in 2013 with a wide disparity between CEOs in the S&P 100 and those in the Other 400 ($3,046,000 and $1,750,000, respectively).
Year-over-year growth in short-term payouts was 5% in 2013, after a 3% decline in 2012. Among Other 400 companies, the growth was more pronounced: a 7% advance in 2013, following 2012’s 3% decrease. For CEOs at S&P 100 companies, meanwhile, year-over-year growth was flat in 2013, following the prior year’s 5% decrease.
Median short-term incentive payouts in 2013 were 115% of target, slightly higher than 109% in 2012, but below the 127% level in 2011. For CEOs of S&P 100 companies, the situation was markedly different. At 116% of target, 2013 payouts closely aligned with the larger sample. However, this compensation was lower than 120% payout in 2012 and considerably less than the 2011 payout (138%).
While payouts may be lower for S&P 100 CEOs, their targets have increased in recent years, from a median 151% of base salary in 2011 to 160% in 2013. Targets at the Other 400 have also increased, from 125% of salary in 2011-2012 to 130% in 2013.
“This finding is consistent with our observation that the lower salary increases are offset by higher incentive levels,” said Mr. Cross. “However, this exchange of fixed for variable compensation makes sense only if companies focus on the performance measures and goals embedded in these incentives.”
For the S&P 500, total cash compensation (sum of base salary and actual bonus payout) increased 5% to a median $2,958,000. At $4,195,000, median cash compensation for CEOs at S&P 100 companies in 2013 exceeded that for CEOs at Other 400 companies by $1,437,000.
To download the survey results, visit http://www.mercer.com/insights/point/2014/ceo-compensation-mercer-study.html.