CEO pay trending up after declining early in pandemic
In 2020, median total CEO compensation increased by 3%, up from 2% in 2019.
The economic fallout from the pandemic has forced businesses to adjust the structure and compensation of their workforces. Many companies altered their performance plans, froze or reduced salaries, and furloughed employee segments, according to the 2021 Gallagher Russell 3000 CEO and Executive Compensation Trends study.
“Now that the economy is picking up, organizations are seeking to attract new senior managers,” the report said. “Even in the executive ranks, the concept of pent-up turnover is becoming apparent as some corporate leaders begin to job-jump in response to feeling stagnant at their current organizations and compensation levels. Many employers that Gallagher works with are reviewing their executive compensation plans and programs to ensure they support their leaders’ career and financial wellbeing and do not lose key talent to the competition.”
Related: CEO pay up 940 percent over 40 years, compared to workers’ 12 percent
Executive pay increases have slowed since 2018 for two reasons:
- Investor and other stakeholder scrutiny, and tax reform enacted at the end of 2017.
- Beginning with 2019, the COVID-19 pandemic spurred an overall economic crisis.
Nevertheless, CEO pay levels picked up a bit after falling steeply in 2019, indicating that companies focused on retaining key talent through the pandemic for strong leadership as the economy recovers.
Although CEO pay growth increased slightly, incumbent CEO pay remains even higher. These increases suggest that companies continue to reward successful CEOs. In 2020, median total CEO compensation increased by 3%, up from 2% in 2019, for a 6.2% compound annual growth rate since 2016. For CEOs in place since 2016, however, the compound annual growth since 2016 reached 8.2%.
Among the other findings:
- The war for talent continues to rage between emerging and larger companies. Overall, the disparity of pay increase rates between larger and smaller companies shows that the compensation gap continues to close. Smaller companies hire from larger companies and typically represent a higher-growth business model.
- Scrutiny of generous executive pay could intensify, prompting the need for greater transparency on the pay-for-performance alignment and the far-reaching strategic benefits that incentive plans are meant to generate.
- Environmental, social and governance (ESG) issues such as income equality continue to draw shareholder focus. The issue of income inequality in the United States has become inextricably tied to executive compensation since the financial crisis of 2008.
- The SEC and shareholders require new human capital and ESG disclosures. The SEC is moving toward a potentially mandatory ESG reporting framework because of the demand for comprehensive and comparable data.
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