Total CEO pay in U.S. companies rose by 5.5% for 2019, Willis Towers Watson study finds

Rhea-AI Summary

According to a recent analysis by Willis Towers Watson (NASDAQ: WLTW), total compensation for CEOs in the S&P 1500 decreased significantly in 2019, with a median increase of only 5.5%, down from 13.7% in 2018. Small- and mid-cap companies faced the steepest declines, while S&P 500 CEOs averaged a 13.1% rise. Annual bonuses fell 3.2%, indicating weaker corporate performance. Additionally, almost 19% of companies have lowered CEO salaries in 2020 due to COVID-19 impacts. The analysis was based on 1,006 companies, providing a comprehensive outlook on executive pay trends.

Positive

• Earned long-term incentives rose 8.4% in 2019.
• CEO salaries showed a modest increase of 2.5% at the median.

Negative

• Overall CEO compensation growth significantly slowed to 5.5%.
• Annual bonuses decreased by 3.2%, reflecting weaker corporate performance.
• Small- and mid-cap companies saw the largest declines in CEO pay.

ARLINGTON, Va., Sept. 02, 2020 (GLOBE NEWSWIRE) -- Increases in total compensation for CEOs at the nation’s largest corporations fell sharply last year as weaker corporate performance led to a drop in annual bonuses paid in 2020 for 2019 performance, according to a new analysis of proxy disclosures by Willis Towers Watson (NASDAQ: WLTW), a leading global advisory, broking and solutions company.

The analysis found total earned pay for S&P 1500 CEOs increased 5.5% at the median in 2019, a sharp drop from a 13.7% jump in the previous year. The increase marks the smallest rise since a 2.2% increase in 2016. The drop was primarily felt by small- and mid-cap companies. While S&P 500 CEOs saw a 13.1% increase at the median, total pay for S&P 600 and S&P 400 CEOs grew just 4.8% and 0.2%, respectively. Earned pay includes base salary, annual and long-term cash bonuses paid, payouts under long-term performance share awards, and the value of exercised stock options and vested stock awards.

“CEO pay was a tale of two cities in 2019,” said Don Delves, managing director and North American Executive Compensation practice leader at Willis Towers Watson. “The dichotomy between company financial operating performance and share price growth led to contrasts in CEO earnings derived from annual bonuses and long-term incentive awards. This dynamic was especially evident among S&P 500 companies.”

According to the analysis, annual bonuses declined 3.2% at the median. That’s down from an increase of 5.8% the previous year. The analysis indicated the decline reflected weaker operating performance. In fact, the average annual bonus payout dropped from 114% of target in 2018 to just 102% for 2019, the lowest mark since the Great Recession.

Earned long-term incentives, the largest component of executive pay at major companies, increased 8.4% in 2019, down sharply from an increase of 13.1% in 2018. Over half (51%) of long-term incentive pay is delivered through performance plan awards, highlighting the commitment to tying pay to performance for the top executive role. This type of award is a mainstay of long-term incentive programs, granted to over three-quarters (78%) of CEOs.

CEO salaries, which have held steady the past few years, increased a modest 2.5% at the median in 2019. The COVID-19 pandemic, however, is having an impact on CEO salaries in 2020. Nearly one-fifth of companies (19%) have reduced CEO salaries this year so far in response to the COVID-19 pandemic.

“This year’s pay levels will undoubtedly be affected by temporary salary reductions and incentive program adjustments in response to the COVID-19 pandemic. Although it’s still too early to determine the full impact on CEO pay programs, we have seen some CEOs take voluntarily reductions in pay to show solidarity with workers and reflect distressed business conditions. The only certainty regarding CEO pay for 2020 is that it will vary widely across industries and organizations,” said Delves.

About the study

The Willis Towers Watson CEO Pay Study is based on 1,006 S&P 1500 companies with a constant CEO incumbent in fiscal years 2017 through 2019. The study included 340 S&P 500 large-cap companies, 271 S&P 400 mid-cap companies and 395 S&P 600 small-cap companies. Additional findings and a copy of the study can be accessed at Willis Towers Watson’s Executive Pay Memos

About Willis Towers Watson

Willis Towers Watson (NASDAQ: WLTW) is a leading global advisory, broking and solutions company that helps clients around the world turn risk into a path for growth. With roots dating to 1828, Willis Towers Watson has 45,000 employees serving more than 140 countries and markets. We design and deliver solutions that manage risk, optimize benefits, cultivate talent, and expand the power of capital to protect and strengthen institutions and individuals. Our unique perspective allows us to see the critical intersections between talent, assets and ideas — the dynamic formula that drives business performance. Together, we unlock potential. Learn more at willistowerswatson.com.

Media contact

Ed Emerman: +1 609 240 2766
eemerman@eaglepr.com

FAQ

What was the median increase in CEO compensation for S&P 1500 companies in 2019?

The median increase in CEO compensation for S&P 1500 companies in 2019 was 5.5%, down from 13.7% in 2018.

How did annual bonuses for CEOs change in 2019 according to WLTW?

Annual bonuses for CEOs decreased by 3.2% in 2019, down from a 5.8% increase in the previous year.

What impact did COVID-19 have on CEO salaries in 2020?

Nearly 19% of companies reduced CEO salaries in 2020 due to the impacts of the COVID-19 pandemic.

How much did earned long-term incentives increase in 2019?

Earned long-term incentives increased by 8.4% in 2019.

What is the primary component of executive pay at major companies?

Earned long-term incentives are the largest component of executive pay at major companies.