Skip to main content
Article | Executive Pay Memo North America

2020 S&P 1500 CEO pay study

Bonuses fall as strong market supports gains in earned pay

Governance Advisory Services |Executive Compensation

By Michael Bowie , Erik Nelson and Robert Newbury | August 27, 2020

Weaker operating performance in 2019 drove lower incentive payouts in 2020 for CEOs, but strong market performance buoyed earned pay values.

S&P 1500 operating performance measures, often used to determine incentive plan payouts, slowed in 2019 compared with more productive results in the previous year (see S&P 1500 pay-for-performance update: 2019 bonus expectations and a look to 2020). The resulting negative impact on incentive payouts pushed pay outcomes for CEOs lower than were realized in the prior year. The average annual bonus payout dropped from 114% of target for 2018 performance to just 102% for 2019, the lowest mark we’ve reported since the throes of the Great Recession of 2008. Particularly notable was the rise in the number of bonuses paid at or below threshold levels: 16% of bonuses paid were at or below 50% of their respective targeted amount in 2019, compared with just 10% in the prior year. Large-cap CEOs saw the biggest drop in annual bonus values, with our study revealing a –4.7% change at the median. Bonuses for S&P 400 CEOs changed –3.3% at the median, while small-cap CEO bonuses remained flat.

These were among the findings identified by Willis Towers Watson’s Global Executive Compensation Analysis Team (GECAT) in its annual review of S&P 1500 CEO pay. Other key findings highlighting the drivers of CEO pay include:

  • Target pay: Target total pay increased 6% at the median for S&P 1500 CEOs in 2019. Small-cap CEO target pay grew the most at 6.4% at the median, while the S&P 500 CEO pay target rose at 5.6%. Target pay for mid-cap CEO pay aligned with the group overall with a flat 6% increase over the prior year. Total pay continued to be primarily delivered through long-term incentives (LTI), with 60% of a CEO’s pay mix consisting of LTI. Annual bonuses comprise 21% of target pay with the remainder delivered through base salaries.
  • Base salary: Base salaries increased at levels similar to what we’ve observed in the past several years, rising a modest 2.5% overall at the median. Increases were primarily found at small- and mid-cap companies, rising 3.0% and 2.0%, respectively. S&P 500 CEO base salary growth remained flat at the median. In fact, one-third of S&P 500 CEOs have not had a salary bump in the past three years.
  • Annual bonus: Despite lower bonus payouts, targets for annual bonuses in 2019 increased at rates comparable to recent years with the median increase to target bonuses at 3% in 2019 at companies across each index. Bonuses were benchmarked at 125% of base salary at the median for S&P 1500 CEOs for the second year in a row.
  • LTI pay: Target LTI pay grew 7.1% at the median for S&P 1500 CEOs in 2019, topping the 6.5% increase in the previous year. Over half (51%) of LTI pay is delivered through performance plan awards, highlighting the commitment to tying pay to performance for the top executive role. This type of award is a mainstay of LTI programs, granted to over three-quarters (78%) of S&P 1500 CEOs. The average payout of shares from completed LTI performance awards in the 2017 – 2019 period was 112% of target. However, the actual realized gains from these awards was generally higher (the average realized value was 175% of target) given the robust overall stock market performance through the end of 2019 and the resulting positive impact on equity-based awards.
  • Earned pay: The rate of increase in earned pay for S&P 1500 CEOs dropped significantly overall in 2019, increasing just 5.5% at the median compared with a 13.7% jump in the prior year, the lowest we’ve observed in our study since a 2.2% rise in 2016. The drop was primarily felt at small- and mid-cap companies. S&P 500 CEOs saw a 13.1% increase at the median in 2019, while the S&P 600 and S&P 400 grew just 4.8% and 0.2%, respectively. Although lower annual bonus payouts affected these results, they did not tell the whole story of earned pay in 2019. We observed a sharp contrast in earned LTI values when reviewing by company size: Strong stock price performance throughout 2019 supported a 23.5% increase at the median in earned LTI value for S&P 500 CEOs, while small-cap CEOs grew at a much slower rate of 6.8%. Earned LTI value for mid-cap CEOs changed –2% at the median primarily due to a combination of fewer CEOs that chose to exercise stock options and a drop in the average number of options exercised for those who did.

    The dichotomy between company financial operating performance and share price growth in 2019, particularly in the S&P 500, led to contrasts in CEO earnings derived from annual incentives and LTI, respectively. Target pay for S&P 1500 CEOs overall continued to climb through moderate increases to each component of total direct compensation.

  • COVID-19 impact: 2020 pay levels will undoubtedly be impacted by the effects of temporary salary reductions and incentive program adjustments in response to the COVID-19 pandemic, although it’s still too early to determine the full impact on CEO pay programs. Approximately 20% of S&P 1500 companies reduced CEO salaries from 2% to 100% for periods ranging from a few weeks to the entire year.

    As companies react to the tremendous challenges posed by the COVID-19 pandemic in 2020, pay for the top executive role will certainly be under the microscope.

Download the full report

Associate Director, Global Executive Compensation Analysis Team (Arlington)

Director, Global Executive Compensation Analysis Team (Houston)

Senior Director, Global Executive Compensation Analysis Team (Columbus)

Contact Us