Stock Awards to CEOs Have Grown Considerably

Stock awards have become a key compensation vehicle used by boards in their efforts to better align pay and performance for the long term, almost entirely replacing stock options. It is one of the main findings from a new report, CEO and Executive Compensation Practices: 2018 Edition, a collaboration by The Conference Board, Gallagher, and MyLogIQ.

In 2017, full value stock awards (including restricted stock, vesting upon the completion of a service period, and performance-based shares) grew by 17.9 percent in the Russell 3000 and by 10.8 percent in the S&P 500, an increase from 2016. The most significant growth occurred in the health care industry, at 110.8 percent, following a similarly significant increase in 2016 of 154.6 percent. Two other sectors – energy and information technology – also reported large increases of about 30 percent. Today, these awards represent almost 50 percent of total CEO pay in the S&P 500 and almost 40 percent in the Russell 3000. By way of comparison, in 2010, these percentages were 32 percent and 23 percent, respectively.

The report documents trends and developments in CEO and 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 2018. The study of disclosed compensation elements is complemented by a review of the major features of short-term and long-term incentive plans (STIs and LTIs) in a subset of 100 mid-market companies included in the Russell 3000 index as of May 2018. The report also examines say-on-pay resolutions and shareholder proposals on issues of executive pay that went to a vote at Russell 3000 companies in this proxy season, and reviews data from the first year of pay ratio disclosure, which became mandatory for many U.S. public companies in 2018.