CEO Pay Projected to Increase in 2021 and 2022, Says Study

In contrast to 2020, where CEO median pay among the S&P 500 remained flat, pay is expected to increase in 2021 (based on 2022 proxies) and 2022 given strong performance and a lightening of the pandemic impact, according to a recent Pay Governance study. Findings of the study include:

• Actual CEO pay is anticipated to increase “in the low- to mid-single digits” in 2021 due to higher bonuses and LTI awards.
  
  
• Given that CEO pay increases have historically been 10% lower than TSR performance, median target CEO pay may increase in the mid-single digits in 2022 (could be greater than 10% in high-growth industries).
  
  
  • S&P 500 TSR was +18% in 2020 and 29% in 2021
    
    
• The prevalence of performance-based awards decreased slightly in 2020 due to pandemic uncertainty, but this is likely to reverse itself once companies feel comfortable setting multi-year goals again.
  
  
• Finally, 2021 and 2022 pay may be positively impacted by Compensation Committees setting more ambitious targets versus the more conservative targets we saw during the pandemic; combined with good performance, this will result in higher bonus and LTI payouts going forward.

The article suggests that with regard to executive pay, at least, we seem to have left the worst of the pandemic-related stagnation behind us. However, inflation and the war for talent (see Center survey story above) will continue to impact pay, and investors and proxy advisors are expected to be on alert for any perceived misalignment of pay and performance as the economy improves.