Turns out C-Suite compensation increases in the past year weren't much greater than what the rank-and-file employees in the U.S. received. A Mercer analysis of 240 public company compensation data showed that increases by type of compensation and by size of company were in the same range as for employees overall: 3-5 percent.
Long-term incentive pay grew by 4 percent in 2013 vs. 2012. Long-term incentives comprised two-thirds of total compensation. The median compensation package was $9.6 million, the median long-term incentive component just under $6.5 million.
Total median compensation increased by 3 percent for CEOs at Top 100 companies and by 5 percent for those at Top 500 firms, although the amount earned by the Top 100 bosses was still considerably higher ($14.4 million) than that earned by those at Top 500 companies ($8.6 million).
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The primary trend identified by Mercer: The big public companies are leaning increasingly toward offering performance shares to their CEOs, a practice that was found in 51 percent of the companies in 2013 compared to 41 percent in 2011.
See also: CEO comp stagnant in 2013
"Utilization of time-vesting restricted stock was relatively steady over the past three years (22 percent of the sample companies granted them in 2013)," Mercer reported. "Among S&P 100 companies, the 50 percent threshold [in offering performance shares] was crossed in 2012, and usage increased to 56 percent in 2013. The prevalence of stock options continued to fall in 2013 with just 25 percent of S&P 500 CEOs receiving option grants (down 10 percentage points since 2011)."
Mercer opined that this trend is in response to constant criticism over the years about options as an incentive to drive performance.
"In practice, performance awards are more closely aligned to explicit financial or operational outcomes than stock options," said Ted Jarvis, Mercer's Global Director of Data, Research and Publications. "However, the performance measures and associated goals must reflect the company's strategic objectives for performance shares to be meaningful incentives."
According to David Cross, Partner with Mercer's Executive Rewards practice, "Companies are facing pressure from external advisory groups to adopt certain policies and practices used among their peers, including metrics and goals. This is a 'safe' approach that mitigates risk, but does not necessarily result in programs that best align with shareholder value. Benchmarking isn't a substitute for well-designed programs that appropriately reflect the business strategy."
For the smaller of the large companies, Mercer found that "a single type of long-term vehicle is distinctly a minority practice… with just 3 percent of CEOs receiving options only, 3 percent receiving restricted stock only and 9 percent receiving performance shares or performance cash only. Approximately one-third of the CEOs were granted a combination of all three, with an average weighting of 28 percent options, 30 percent restricted stock and 42 percent performance awards."
That trend will continue to gather momentum, Cross predicted. "Performance shares are seen to have greater impact by management while options are frequently considered reflective of overall market movement and less impacted by management. If that perspective persists, options will continue to decline for some time," he said.
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Dan Cook
Dan Cook is a journalist and communications consultant based in Portland, OR. During his journalism career he has been a reporter and editor for a variety of media companies, including American Lawyer Media, BusinessWeek, Newhouse Newspapers, Knight-Ridder, Time Inc., and Reuters. He specializes in health care and insurance related coverage for BenefitsPRO.
