Companies are having to make additional disclosures to account for increases in the pay of their chief executives that come from pension contributions and market performance.
That’s among the findings from the Conference Board, which collaborated with Arthur J. Gallagher & Co. on the report “CEO and Executive Compensation Practices: 2015 Edition,” which looked at trends and developments in senior management compensation at companies that issue equity securities registered with the U.S. Securities and Exchange Commission (SEC) and were included in the Russell 3000 index as of May 2015.
According to the research, the median total compensation of CEOs of U.S. public companies in the Russell 3000 index gained a heady 11.9 percent in 2014 over the previous year and as much as 34.7 percent over 2010. Equity awards, excluding stock options, represent 34.7 percent of the total value of the CEO pay package, and the median grant-date value of stock awards grew about 25 percent in 2014.
While much of the increase in CEO pay among companies in the Russell 3000 stemmed from “the performance of certain segments of the equity market,” according to Matteo Tonello, managing director of corporate leadership research at the Conference Board and a coauthor of the report, another factor was what went into their pensions.
The report said that, “among larger firms (with market capitalization of $5 billion or greater), these exceptional one-year rises in 2014 mostly resulted from decisions by many organizations to revise their calculations for CEO pension contributions.”
Some of the factors that played into companies’ decisions to recalculate contributions included lower discount rates and longer life expectancies, as reflected in updated mortality tables from the Society of Actuaries. Although factors like that were once included in compensation agreements, they’re outside the control of a board of directors.
What may be surprising to anyone who isn’t a CEO is another bit of information contained in the report: CEOs don’t make most of their money from their base salaries. Instead, performance-based components provide the bulk of their income, with stock awards the most important part, although it varies significantly across industries and size groups.
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