American CEOs weren’t reduced to clipping coupons in 2013. But activists who chronically complain about outrageous CEO compensation should be somewhat mollified by the second consecutive year of mediocre CEO comp increases.
The top line on a Towers Watson analysis of proxy materials from 430 public companies is that average CEO comp rose just a half a percent in 2013, compared to 5.7 percent in 2012.
The analysis is based on a formula that includes the value of a CEO’s pension, and that’s where the trouble occurred. Pension value was whacked by increasing interest rates last year and proved to be a huge damper on CEO comp.
“The limited size of total pay increases can be attributed to much lower values for executive pensions, driven down by higher interest rates. In fact, if the impact of the change in pension values were excluded from the analysis, total SCT pay would have increased 4.3 percent in 2013,” TW said.
However, thanks to the bubbling stock market, TW reported that “realizable pay” jumped significantly. Realizable pay is a reflection of what everything the CEO has is worth, including stock options. That benchmark rose 15 percent, certainly taking the sting out of the pension plunge for many.
And while the pension dough is simply sitting out there waiting for retirement to occur, stock options are, within limits, there for the plucking.
Looking at salaries alone, TW found only modest increases on average: 2.7 percent, in line with 2012 increases.
“Additionally, the percentage of CEOs who received annual bonuses that were at or below target levels increased from 49 percent in 2012 to 53 percent last year. Target long-term incentives, the largest component of executive pay in major companies, increased 3.3 percent at the median in 2013, down from an increase of 9.8 percent in 2012,” the analysis reported.