ROCKVILLE, Md. (April 24, 2023) – ISS Corporate Solutions, Inc. (ICS), a leading provider of compensation, governance, cyber risk monitoring, and sustainability offerings to help companies improve shareholder value and reduce risk, today announced the results of a preliminary analysis of CEO pay changes at those S&P 500 companies that filed proxy statements between October 1, 2022, and April 18, 2023.
The ICS analysis, which examined 337 U.S large capital companies at which the CEO was in the same role for the current and previous filing years, finds a median CEO pay increase for S&P 500 companies of 3.1percent between the 2022 and the 2023 filing period compared with a median pay increase of 13.2 percent for the prior year when evaluating the comparable 2021 and 2022 filing periods. Median pay for CEOs at the included S&P 500 companies stood at $14.3 million during the most recent period studied.
Analyzing the components of pay for S&P 500 CEOs to understand the drivers of pay changes, the median base salary for an S&P 500 CEO was $1.3 million in 2023, representing a median change of 2.9 percent compared with the previous year. Bonus and annual incentive payouts decreased compared to the prior year, with a combined median of $2.59 million, representing a decline of 5.4 percent. Both stock and option awards, where granted, increased at a higher rate for S&P 500 CEOs, with the median stock award now standing at $8.5 million (an increase of 9.5 percent) and the median option award at $3 million (a median increase of 8.3 percent).
“Lower bonus and annual incentive payouts were expected over the last year given a challenging operating environment for many blue-chip companies,” said Roy Saliba, Managing Director at ISS Corporate Solutions. “It’s surprising to see, however, the magnitude of increases in stock and option awards, particularly when viewed against the backdrop of last year’s market volatility.”
Notably, many of these awards would have been granted in early 2022 (for companies with a calendar fiscal year) or late 2021 and before the Federal Reserve’s actions to tame inflation and increase interest rates that last year led to deteriorating market conditions for many companies and industries, potentially reflecting boards’ continued expectations of growth at the time (and to a lesser degree, recovery from the pandemic for some lagging industries). However, pay increases were not universal: CEO pay increased at 58.2 percent of S&P 500 companies observed, but fell at 41.5 percent of companies.
Taking a closer look at the relationship between CEO pay changes and 1-year total shareholder return (TSR) reveals interesting insights. At companies at which pay increased, the analysis found that the change in median pay was 11.5 percent overall while the median 1-year TSR (measured over the most recent fiscal year of each company) declined by 8.4 percent. Conversely, where pay decreased, the decline in median pay was 12.8 percent overall while the median 1-year TSR dropped 12 percent.
Broken down by industry, the analysis finds that pay increased at 16 of the 25 industries examined while the median change in pay was negative at the remaining nine industries. Median 1-yr TSR, however, was positive across just five of the 25 industries, and negative at the remaining 20.
Companies in the Energy industry, the best-performing in the S&P 500 over the period examined, enjoyed a median 1-year TSR of 71.4 percent but had a minor decrease in CEO pay of 0.8 percent. Companies in the worst-performing industry, Automobiles & Components, saw median 1-year TSR decline by 42.9 percent and a median increase in CEO pay of 1.5 percent. This underscores a disconnect between CEO pay and short-term share performance across a number of industries where companies’ 1-year median TSR declined by double digits while CEO pay concurrently increased by double digits. These industries include Banks, Financial Services, Technology Hardware & Equipment, and Equity Real Estate Investment Trusts.
About ISS Corporate Solutions
Companies turn to ISS Corporate Solutions, Inc. (“ICS”) for expertise in designing and managing corporate governance, executive compensation, cyber risk monitoring, and sustainability programs that align with company goals, reduce risk, and manage the needs of a diverse shareholder base by delivering best-in-class data, tools, and advisory services. Our global client base extends to companies located across North America, Europe, and Asia. ICS is a wholly owned subsidiary of Institutional Shareholder Services Inc. (“ISS”) and is headquartered in Rockville, Maryland. ISS’ Global Research Department, which is separate from ICS, will not give preferential treatment to, and is under no obligation to support, any proxy proposal of a company (whether or not that company has purchased products or services from ICS). Similarly, ISS’ responsible investment research and analytics teams will not provide preferential treatment to, and is under no obligation to provide a favorable rating, assessment and/or any other favorable result to any corporate issuer (whether or not that corporate issuer has purchased products or services from ICS). No statement from an employee of ICS should be construed as a guarantee that ISS will (a) recommend that is clients vote in favor of any particular proxy proposal nor (b) provide a favorable rating or other assessment of any corporate issuer. For more information, please visit www.isscorporatesolutions.com.