Executive Compensation Soars in Pandemic’s Wake

Compensation for chief executive officers increased substantially in 2021 after small or negative growth in 2020 and 2019. That’s one major takeaway from Gallagher’s CEO and Executive Compensation Trends: 2022 Edition, an annual report that this year provides a baseline for assessing the pandemic’s impact on executive compensation.

The report includes compensation data from 2,845 companies and covers compensation for CEOs, named executive officers (NEOs), and chief financial officers (CFOs). Gallagher analysts examined the most recent corporate disclosures by Russell 3000 companies, to review individual elements of compensation packages and executive compensation trends by major industry and company size. The report also includes comparisons with S&P 500 organizations to offer additional perspective on the differences between large and small firms.

CEO pay grew 28.2 percent for the overall Russell 3000 and 17.7 percent for the S&P 500 index, according to the report. This contrasts with rates of 3.0 percent and -4.1 percent for 2020, and 2.0 percent and -1.6 percent for 2019.

“We see executive pay increases in salaries, bonuses, and LTI [long-term incentives], with LTI 50 percent over the previous year for the Russell 3000 excluding S&P 500,” the report states. “Clearly, this represents a rebound from the Covid-19 years, when pay cutbacks were prevalent.”

Analysts cite several factors for this, including “robust economic growth fueled by stimulative fiscal and monetary policy,” increased company focus on retaining top talent, and larger-than-usual one-time salary and other compensation reductions in 2020—resulting in higher-than-usual year-over-year changes.

“While CEO pay growth witnessed large increases, particularly in the LTI component of pay, incumbent CEO pay shows increases slightly lower than those for CEOs overall,” according to the report. “These increases suggest that companies continue to reward successful CEOs. Moreover, the volatile business climate with rising interest rates, supply chain challenges, international turmoil, and labor force constraints requires capable CEO leadership able to navigate through these challenges, leading to continued demand for top talent.”

Meanwhile, the Gallagher report indicates that CFOs earn approximately 63 percent less than CEOs. Still, the median total direct compensation of CFOs in Russell 3000 companies rose 19.5 percent from 2020, to reach $2,194,000. For CFOs of companies in the S&P 500, total direct compensation was $4,634,000 in 2021.

The spread in base salary between higher- and lower-paid CFOs was fairly narrow relative to other executive titles, with a base salary of $343,000 at the 25th percentile vs. $568,000 at the 75th percentile. However, the value of stock awards varied widely: The Russell 3000 CFO at the 25th percentile received stock awards valued at $400,000, while the CFO at the 75th percentile received $2,312,000 in stocks.

Additionally, according to the Gallagher report, “the disparity in pay-increase rates between larger and smaller companies shows that the compensation gaps continue to close,” analysts note in the report. “Smaller companies hire from larger companies and typically represent a higher-growth business model. Smaller biotech companies attracting talent from larger life-science companies represent an example of this trend. As a percentage of pay, smaller-company compensation leans toward LTI. This is particularly the case for companies under $50 million in revenue.”

From: BenefitsPRO