Dive Brief:
- Total pay for CEOs increased only 2.7% in 2022, compared to 18.3% in 2021, a recent analysis of company proxy disclosures by advisory firm WTW found.
- In addition, the number of CEOs who received a total pay cut in 2022 doubled from 21% in 2021 to 42%. The analysis included 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 value of executive pensions.
- Annual bonuses took the biggest hit, declining 2.5% in 2022 after rising 36.8% the year before. The value of long-term incentives rose 10%, compared with 44% in 2021, and CEO salaries rose 3.1%, compared with an unchanging salary rate in 2021.
Dive Insight:
The slow in total pay increases is a positive sign, WTW intimated. “Given the stock market performance and lingering economic uncertainties, the fact that annual and long-term incentives weakened last year demonstrates the pay-for-performance model is working at most companies,” Don Delves, WTW North America leader for executive compensation, said in a press release.
The slowdown was the result of stock market performance and lingering economic uncertainties, the firm said, which was mainly reflected in a decrease in annual bonuses and slower growth in long-term incentives.
Outsized CEO pay has been a source of contention for shareholder groups in recent years. A 2022 analysis by As You Sow, a shareholder advocacy nonprofit that keeps particularly close tabs on CEO pay, found that CEO compensation does not correlate with past stock return performance; rather, it held, companies with the 100 most overpaid CEOs underperformed the equal-weighted average S&P 500 company for each year going back to 2015.
In a February report, contrasting with WTW’s findings, As You Sow’s analysis found that total pay for CEOs continues to rise. While WTW cast a wider net — looking at 450 S&P 1500 companies — As You Sow narrowed its analysis to the S&P 500. Additionally, WTW’s analysis relies on more recent disclosures — proxies disclosing 2022 data filed by the end of April.
In addition to its findings regarding the slowing of pay increases, WTW found that companies are increasingly using ESG performance measures in annual incentive plans; 56% used such a measure in 2022, compared with 49% in 2021. The use of ESG measures in long-term incentive plans remains low, WTW said, but 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 strategy, such as carbon emission reduction and diverse representation for management and the workforce,” Kenneth Kuk, WTW’s senior director for work & rewards, said.
