The July release of the 2022 Equilar 500 report shows that CEO median compensation rose by 18.9% to $14.2 million, driven by a 12.3% increase in stock awards and an upturn of 29.3% in cash bonuses. This is explained largely in part to the strong market performance in 2021. CEO to median employee pay also rose from 190:1 in 2020 to 208:1 in 2021, a nearly 10% jump indicative of rising wages throughout the labor market.
Equilar partnered with Adam Hearn, a senior executive compensation consultant from Meridian Compensation Partners, to examine the results and provide insights into the survey data. Heard described the increase in CEO pay not as a spike, but as a “return to historical averages.” He explains this by amortizing the increase over the pandemic period, resulting in levels more in line with a typical 3-5% annual increases.
In terms of the outlook for CEO pay, Hearn speculated that despite the economic uncertainty, the demand for top talent will likely lead to continued pay increases, provided company performance is aligned. But he acknowledged pay packages will continue to be scrutinized and expects the recent downturn will play a role in some pay and performance misalignment, especially as some of the quantitative tests that proxy advisor firms consider looks at CEO pay compared to movement in stock price.
Hearn was asked about other factors that may impact the future of CEO pay including the SEC’s “pay versus performance” rules that are expected to be proposed. While pointing out the numerous pitfalls of the proposed rules and ultimately assessing that the rules “will have limited value” to both investors and boards who make decisions on CEO pay, he suggested the disclosure of a peer group utilized for calculating relative TSR is an area that companies may want to focus on. It may not make sense for companies to use the same peer group used for benchmarking compensation so begin discussions on what companies should be considered in a TSR comparator group.
The full Equilar report and additional commentary from Meridian can be found here.