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CEO Pay Up 12% in 2014

Compensation among S&P 500 chief executive officers (CEOs) rose 12.1% last year, according to consulting firm Towers Watson. Furthermore, financial advisor firm Mercer indicates that an average worker’s pay rose just 2.9%. It is good to be the king.

The improvement for CEO compensation was more rapid in recent years:

Chief executive officers (CEOs) at the nation’s largest corporations saw their total compensation accelerate last year at its fastest clip since 2010, (…). Higher pension values, larger annual incentive payouts and higher values of long-term incentives granted last year all contributed to the large increase in total pay.

Also:

The analysis also found that the long-term performance plans are now the most prevalent long-term incentive vehicle and account for the largest portion of the long-term incentive mix. Three in four companies (75%) grant a mix of long-term vehicles, two-thirds of which combine performance plans with one of two forms of equity vehicles (stock options or restricted stock), while the other one-third grants all three vehicles.

Base salary improvements, therefore, were not likely to be a major contributor.

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The ability of shareholders to have a real voice in compensation has not increased:

The fifth year for mandatory say-on-pay votes is off to another relatively positive start, based on Towers Watson’s research. Among the 151 of the Russell 3000 companies that disclosed their shareholder voting results by April 11, shareholder support averaged 90%. This is roughly the same level of shareholder support as in each of the first four years.

Boards of directors still completely control CEO compensation at almost all public companies.

Among the other observations from the Towers Watson analysis:

Change-in-control payments at acquisitions. Just over half of companies (51%) use severance multiples of two or less for change-in-control payments to CEOs at the time of acquisitions, with two being the most common. Three in 10 companies use a multiple of three.

Pension value changes. More than four in 10 companies (41%) reported a change in pension value and nonqualified deferred compensation earnings in 2014. The median change was 108% from 2013 to 2014.

Total pay varies by company size. CEOs at small-cap companies received the largest increase in total pay (SCT) in 2014, compared with their counterparts at larger companies. Total pay for small-cap CEOs increased 13.7% from 2013 to 2014, compared to 11.6% for CEOs at large-cap companies and 10.6% for CEOs at mid-cap companies.

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