More organisations are looking to attract and retain senior management roles by offering higher compensation as mass turnover looms in the post-pandemic era, according to the latest report by Arthur J. Gallagher.
Based on 2,848 companies, the median compensation for the R3000 chief executive officers (CEOs) inched up to 3% from 2% in 2019. Meanwhile, S&P 500 CEOs saw an increase of 4.1%, compared to a 1.6% decline in 2019.
Since 2016, the compound annual growth rate (CAGR) for the CEO role reached 6.2% and 4.5% for R3000 and S&P 500 companies, respectively. Meanwhile, the median total direct compensation (TDC) for S&P 500 CEOs stood at US$11,968,000, exceeding R3000 CEOs at US$4,354,000.
The rise of stock awards and performance-based compensation is the main driver behind the growth in both indexes.
“Organisations are prioritising the need to attract new senior managers,” said James Reda, managing director for Gallagher’s executive compensation consulting practice. “Even in the executive ranks, the concept of pent-up turnover is becoming apparent, as some corporate leaders begin to job-jump in response to feeling stagnant at their current organisations and compensation levels.”
The report also found that chief executive officers (CFOs) earn 60% less than CEOs, but their TDC CAGR is similar to CEOs at 6.2% since 2016. The R3000 base compensation for CFOs ranges from US$335,000 at the lower quartile to US$550,000 at the upper quartile.
Meanwhile, the median R3000 TDC for named executive officers (NEOs) was US$1,612,000 in 2020.
NEOs earn 63% less than CEOs, but their TDC CAGR exceeds CEOs at 7.5% since 2016. The R3000 base compensation for NEOs ranges from US$322,000 at the lower quartile to US$549,000 at the upper quartile.
“The scrutiny of generous executive pay could intensify in the coming years, prompting the need for greater transparency on the pay-for-performance alignment, and the far-reaching strategic benefits that incentive plans are meant to generate,” Reda said.