According to Gallagher Study Based on 2,800+ Proxy Filings
 
Gallagher’s CEO and Executive Compensation Trends: 2023 Edition study of more than 2,800 companies found that in 2022, CEO pay decreased 7.3% and 2.7% for the overall Russell 3000® and S&P 500® indices. This contrasts with the explosive increases of 35.5% and 18.7% for 2021, compared with 0.1% and 3.4% for 2020.
 
“Weaker annual and long-term incentive awards contributed to a reversal in total compensation trends and poorer stock performances accounted for much of the decline in CEO pay in 2022 because CEO compensation is often tied partly to investor returns,” says James Reda, Managing Director, Executive Compensation Consulting practice at Gallagher.
 
“In particular, bonus payouts dropped noticeably for all sizes of companies,” says Reda. “Long-term incentive (LTI) values bumped up slightly higher for companies with revenue below $1B. However, larger companies with revenue of $1 billion and higher showed reduced levels of LTI.”
 
Chief Executive Officers (CEO) Compensation

• While Russell 3000 CEO pay decreased by 7.3%, incumbent CEO pay decreased at a slightly lower rate of 7.1%
• Contrary to the Russell 3000 companies, incumbent CEO pay at S&P 500 companies actually increased very slightly by 0.5% year-over-year
• This difference suggests that companies continue to reward and strive to retain successful CEOs who can navigate the volatile business climate
• New CEOs hired into the role either internally or externally are less likely to receive the same level of compensation as their more tenured predecessors

 
Named Executive Officers (NEO) Compensation

• Unlike CEOs, pay for other named executive officers (NEOs) remains positive
• Median pay for these other executives saw small increases of 1.8% and 5.6% for the overall Russell 3000 and S&P indexes
• This NEO pay increase contrasts with decreases of 7.3% and 2.7% seen for CEOs, suggesting that the gap between CEOs and NEOs may be lessening

In 2022, compensation committees responded to economic conditions, regulatory changes and shareholder scrutiny. All of these factors led to worries about a potential recession and lower profits, causing concern about executive pay increases for many companies. Given global stock market performance, the fact that annual and long-term incentives weakened last year demonstrates the pay-for-performance model is working at most companies.
 
“In 2024, compensation committees must balance the need to compete for top talent, reward performance and avoid overpaying executives,” says Reda. “In addition, compensation committees cannot ignore how employees and the public will perceive their decisions.”