ROCKVILLE, MD (April 11, 2017) – ISS Analytics, the data and analytics arm of Institutional Shareholder Services Inc. (ISS), today announced findings from an analysis of U.S. CEO pay figures for companies reporting their financials by April 10, 2017.
The median CEO pay raise, excluding pensions, at large-cap U.S. companies was 6.7 percent, representing the largest annual increase in the last five years, according to ISS Analytics data. An examination of 270 S&P500 company filings year-to-date finds that median pay in 2016 stands at just under $12.2 million compared with roughly $10.9 million in fiscal 2015. Including pension allocations, the median CEO pay raise was 8.1 percent.
“After muted increases evidenced in 2015, CEO pay rebounded sharply to record levels in 2016” said John Roe, Head of ISS Analytics. “And while the increases may give pause to some investors, they came largely in the form of shareholder-friendly performance and equity based compensation.”
As in past years, equity grants were the primary fuel behind CEO pay increases, with equity compensation packages now representing more than 60 percent of S&P 500 CEO aggregate compensation. The median S&P 500 CEO received 4.5 percent more value in stock grants during fiscal 2016 than in 2015. Reversing a trend witnessed over the past several years, the use of stock options increased in aggregate by 19 percent in 2016, though much of this growth was focused on a small number of CEOs.
“Optimism for the business environment, stretching back to the waning days of 2015, likely led to the increases in equity grants,” said Roe. “However, events near the end of 2016 did not materially impact most CEO equity grants, because those grants are valued on the day they are granted – typically early in the fiscal year.”
For S&P 500 CEOs, base salary increases were, as in previous years, relatively modest. The median base salary raise for CEOs based on filings to-date in 2017 was less than 1 percent, lower than the 2.2 percent evidenced in last year’s filing. For these chief executives, base salary is usually a small portion of their total pay package – in aggregate, these S&P 500 CEOs receive less than 10 percent of their total pay through salary.
Non-equity incentive payments, which typically provide a barometer for compensation committees’ evaluation of annual performance, fell slightly from 2015 to 2016. These payments, which are typically in the form of annual cash awards made to reward the realization of predefined performance objectives, were in aggregate down 0.2 percent in fiscal 2016 compared with fiscal 2015, in a year where the S&P 500 index performance jumped 9.8 percent. Similarly, the use of discretionary bonuses continued their retreat, paid out by less than 10 percent of these companies and accounting for only 2.7 percent of aggregate S&P 500 CEO pay.
For purposes of this analysis, ISS Analytics focused on median year-over-changes, rather than changes in the median, and compared only companies with a single CEO that was in place for full-year 2015 and 2016 (as reflected in 2017 filings). The analysis looked at all companies filing after July 1, 2016 and through April 10, 2017, as having disclosed their fiscal 2016 pay.