S&P 500 Report: Do 2020 Trends Foretell the Future?

Nicholas Price
Executive compensation has been a topic of interest for many years. Proxy Season 2020 opened as the COVID-19 pandemic began to create large-scale disruptions in economic and commercial activity in the U.S. As turbulently as Proxy Season began, it ended amid civil unrest against systemic racism with the Black Lives Matter protests. The uncertainty brought on by the pandemic cast a spotlight on corporate resiliency, risk management and executive compensation, and is reshaping areas of corporate and investor focus.

Diligent partner CGLytics is releasing its second annual S&P 500 Proxy Season review to understand how America's largest companies by market capitalization paid their Chief Executive Officers (CEOs) compared to their performance. The analysis also focuses on other trends such as CEO Pay Ratio and Named Executive Officers (NEO) pay trends.

Key Takeaways:
  • Pay cuts announced by S&P 500 companies could be argued to be a mere "fa?'ade." It was on average 6% of CEO pay for the 2019 financial year.
  • Total Shareholder Compensation (TSC) and Total Realized Compensation (TRC) both climbed from 2018 to 2019.
  • The Communications Services sector has the highest paid aggregate compensation in the index.
  • Long Term Incentives (LTI) continues to dominate CEO average pay. It forms over 70% of the average CEO pay. Base pay, however, forms an insignificant portion. From our analysis, the data suggests that base pay constituted only 5.9% on average of total CEO compensation mix in the S&P 500 in 2020.
  • Over three quarters of S&P 500 companies fail to align executive compensation with performance.
  • The IT Sector has the least relative alignment between pay and performance; only 15 percent of IT companies show alignment between pay and performance. Of the remaining companies in the IT sector of the S&P 500, 45% display relative misalignment between pay and performance.
  • The 35 highest-paid CEOs on the S&P 500 reviewed in this report received an aggregated, absolute combined TRC of over USD 3.3 billion, up by 23.6% from the 2018 figure of approximately USD 2.67 billion.
  • Employee pay significantly lags behind CEO pay: The data suggests that the average CEO pay ratio is 262 in the index.
  • Women are vastly outnumbered in executive roles in the S&P 500. Only five percent of companies in the S&P 500 were headed by women in 2019 and women are still vastly underrepresented in executive roles.
Download the report today to find out more!