Total CEO pay in U.S. increased 2.0% in 2015, Willis Towers Watson analysis finds

ARLINGTON, Va., April 14, 2016 -- Total compensation for chief executive officers (CEOs) at the nation’s largest corporations increased modestly last year, driven largely by weaker corporate and stock market performance, flat bonuses and lower pension values, according to a new analysis of proxy disclosures by Willis Towers Watson (NASDAQ:WLTW), a leading global advisory, broking and solutions company.

The Willis Towers Watson analysis found total pay for CEOs increased 2% in 2015, down sharply from the 16% median increase CEOs received in 2015. Total pay, as reported in the Summary Compensation Table (SCT) in company proxy statements, includes base salary, actual annual and long-term cash bonuses, the grant-date value of long-term incentives (LTIs) (such as stock options, restricted stock and long-term performance shares), the value of perquisites, earnings from deferred compensation and the change in value of executive pensions. The modest increase in total pay can be partially attributed to lower values for pension benefits. If pension value changes were excluded from the analysis, total SCT pay would have increased 4.8%.

The analysis, based on 315 S&P 1500 companies with consistent CEOs that filed proxies disclosing 2015 pay by mid-March, found that CEO salary increases held steady in 2015 at 3%. Target annual bonuses were mostly flat, increasing a mere 3% at the median. Fewer companies (53%) paid annual incentive awards to CEOs that were above target levels in 2015, compared with 62% in 2014. Target LTIs, the largest component of total CEO pay in major companies, increased 6% at the median in 2015, down from an increase of 8% in 2014.

“Our findings demonstrate that the pay-for-performance model is working, especially at larger companies,” said Andrew Goldstein, leader of Willis Towers Watson’s Executive Compensation consulting business in North America. “Weaker corporate performance in 2015 compared with 2014 had a definite impact on CEO pay and especially on annual bonuses, which are generally linked closely to a company’s revenue growth and earnings.”

The analysis found that LTI plans continue to evolve toward performance-based plans, with large-cap companies using performance awards more than small-cap companies. About half (56%) of the value of LTIs in large-cap companies is delivered via performance awards, while over a third (41%) of LTI value in small-cap companies is made up of performance awards.

“Many companies are exercising discretion and adjusting bonuses to ensure that payouts are appropriate based on a holistic view of performance and what management can control. But given growing shareholder scrutiny and activism on pay issues, we anticipate companies will continue to manage their executive pay programs carefully to maintain a strong link between pay and financial performance,” said Goldstein.

Other findings from the Wills Towers Watson proxy analysis include:

• Long-term performance metrics. Among the 78% of companies with long-term performance plans, total shareholder return (TSR) is the most common performance metric, used by about half (51%). Three in 10 (29%) used earnings per share, while a quarter (25%) used operating income as the performance metric. Most companies that use TSR also use at least one other metric in their LTI programs, with earnings per share the most common.
  
  
• Strong say-on-pay shareholder support. Among the 149 Russell 3000 companies that disclosed their shareholder voting results by April 12, shareholder support for say-on-pay resolutions averaged 90%. This is roughly the same level of support as in each of the first five years of mandatory say-on-pay shareholder voting.

About Willis Towers Watson

Willis Towers Watson (NASDAQ:WLTW) is a leading global advisory, broking and solutions company that helps clients around the world turn risk into a path for growth. With roots dating to 1828, Willis Towers Watson has 39,000 employees in more than 120 countries. We design and deliver solutions that manage risk, optimize benefits, cultivate talent, and expand the power of capital to protect and strengthen institutions and individuals. Our unique perspective allows us to see the critical intersections between talent, assets and ideas — the dynamic formula that drives business performance. Together, we unlock potential. Learn more at willistowerswatson.com.

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