CEO compensation jumped 5.8% at the biggest US companies

24 July 2019 Consulting.us

Median total direct compensation at the 300 largest US companies increased by 5.8% in 2018 to reach $13.9 million, according to analysis from organizational consultancy Korn Ferry.

“Despite a year-end blip in the stock market, 2018 was very good for Corporate America,” said Don Lowman, Korn Ferry practice leader, executive pay and governance, North America. “Median revenues for the sample 300 were $20 billion, which is a year-over-year increase of 7.5%. Median net income was $1.8 billion, reflecting an increase of 14.1% from 2017. Overall, companies did well in 2018 and compensation committees rewarded CEOs accordingly.”

Though base salaries remained relatively flat – increasing by 1.9% to a median of $1.3 million – the lion’s share of total direct compensation (TDC) increases for CEOs came from performance-based compensation growth, including bonuses and long-term incentives (LTIs).

Annual bonuses increased by 3.9% to a median of $2.6 million, while LTIs jumped a significant 6.8% to a median $10 million.

2018 realized CEO long-term incentive income vs. 2016-2018 total shareholder return

The overall mix of CEO compensation (salary, bonuses, and LTIs) remained consistent year-over-year. In terms of the LTI mix, performance awards (cash and equity) made up the largest portion, at 55%. Stock options made up 21%, while restricted stock made up 24% of long-term incentives.

The Korn Ferry report found that there was a strong alignment between 3-year total shareholder return (TSR) performance and realized LTIs in 2018. CEOs of companies in the top third of 3-year TSR performance had LTI values triple that of CEOs at companies in the bottom third ($15 million versus $5.4 million in LTI value).

“Simply put, CEOs who delivered better TSR are being paid accordingly, while CEOs whose companies aren’t performing don’t realize the same level of compensation,” Irv Becker, Korn Ferry vice chairman, executive pay & governance, said. “This shows compensation committees are designing pay-for-performance packages that work. Now the focus is on goal setting and results.”