The Ups and Downs of C-Suite Compensation
A new report finds CEO and CFO base salaries increasing but bonuses on the decline.
Despite a challenging economy, CEOs and CFOs are continuing to receive salary increases. However, the financial crunch is being felt in their bonuses, according to An Early Look at 2023 CEO & CFO Pay Actions, a new report by Compensation Advisory Partners. The publication, which features insight from 50 cross-industry S&P 1500 companies with median revenue of $4.6 billion, also features information on equity awards, total compensation and pay mix. Ryan Colucci, author of the report and principal at Compensation Advisory Partners, took us inside the findings.
Directors & Boards: Are CEOs and CFOs receiving salary increases in what could be seen as a challenging economy, and is there a difference in the salary raises of the two executive groups?
Ryan Colucci: CEOs and CFOs most often receive salary increases when warranted from a competitive market perspective. When determining CEO and CFO salary increases, the company-wide merit budget is also a common consideration. Recent findings show approximately 80% of each group (CEOs and CFOs) received an increase. However, the magnitude of these increases was slightly higher for CFOs than CEOs, on average.
DB: What about bonuses? Are we seeing those at the same rate as the salary bumps?
RC: Generally, annual bonus payouts vary year to year depending on company performance outcomes versus predetermined financial goals, whereas senior executive salary increases are given periodically based on a competitive market analysis. Generally, as a percentage of target, we have seen many companies pay lower bonuses for fiscal year 2022 results than for fiscal year 2021 results.
DB: It looks as though equity awards have seen an increase for both CEOs and CFOs. Is there a reason for the increase?
RC: These long-term incentive values reflect the grant date fair value, the majority of which typically come with minimum prospective performance requirements to vest. The target or grant date fair value is typically established considering competitive market data, but the degree to which such value is ultimately realized varies significantly. In other words, this ties the majority of senior executive pay to multiyear performance outcomes (financial results and/or stock price) and supports retention, as the vesting periods are generally three or more years.
DB: What is the result for total compensation for CEOs and CFOs? Has compensation increased dramatically?
RC: While there were individual exceptions, average year-over-year total CEO and CFO pay increased +4% and +2% respectively, which broadly aligns with historic norms. For the larger year-over-year changes, those were more pronounced among the CEO data set compared to the CFO data set, but there are a host of factors that can contribute to material increase or decrease in senior executive pay from one year to the next (e.g., actual bonus payout as a percent of target).
DB: How does the pay mix compare to recent years?
RC: Pay mix was similar to what has been seen over the past several years. Incentive compensation (i.e., bonuses and equity compensation) continues to make up the vast majority of pay for both CEOs and CFOs.
DB: Does the survey give any indication as to what we can expect in the area of executive compensation through the rest of 2023 and beyond?
RC: We can expect to see many of the same trends that are gleaned from this early batch of filings, though there will certainly be variation by industry and company size. Higher salary increases relative to historic norms and lower bonus payouts, compared to the prior year, will very likely be consistent themes. In my experience, boards have recently been focused on equity burn rate and stock-based compensation expense when approving grants for 2023, which is not surprising given what we’ve been seeing in the stock market.