The real story on CEO pay over the past year – median increases of 15%, and more of this paid as long term incentives

Recent media reports have suggested that overall CEO pay has not moved since the prior year and that pay is becoming more short term. Both these suggestions are incorrect.

Further, they do not make intuitive sense. And in this article we have the facts and figures to prove it.

Intuitively it just does not make sense that CEO pay had not moved in the most recent fiscal reporting period. Firstly, fixed pay movement decisions for most companies would have been based on an analysis of market movements and levels either before the fiscal year began (i.e. in early 2007), or in the last six months of calendar 2007.

At those times the local and global economies were barrelling along, demand for executives remained high, and the share market reached its zenith in November that year. The result was a median CEO fixed pay increase of 11%.

By the end of the fiscal year storm clouds were on the horizon. But bonuses were payable on an economic year where earnings results were good for almost all sectors. In addition, stung by criticism that they were being too short term, many boards focussed attention on long term incentives for their CEOs.

The result was a median total remuneration increase higher than fixed pay, at 15%.

To get the full, and correct, story read on.


We selected CEOs from GuerdonData® and analysed the change in remuneration between 2007 disclosures and 2008 disclosures. There were 120 individuals in our analysis.

Notes on methodology

CEOs were excluded if:

  • Their remuneration was most recently disclosed prior to January 2008
  • They were not in the CEO role for the whole of the past two financial years
  • Their disclosed remuneration has been significantly impacted by structural change during the period (e.g. David Leckie at Seven Network Limited)

The following abbreviations are used throughout this document:

  • TFR: Total Fixed Remuneration including salary, fringe benefits and superannuation
  • STI: Short Term Incentives
  • LTI: Long term Incentives
  • TR: Total Remuneration

Guerdon Associates applies a rigorous and consistent definition of STIs and LTIs in all of our analysis. Therefore our results will be different from analyses reported in the media that have assumed that all equity compensation is a long-term incentive, or that all companies define ‘long-term’ consistently.

Both these assumptions are wrong.

To qualify as an LTI, the award must be performance hurdled to be considered an incentive and performance must be measured over a period longer than 12 months. Time-vested grants of equity and retention incentives are deemed to be fixed remuneration. Also, cash bonuses contingent on performance over the long term are also classified as LTIs.

In contrast, incentives with just a 12-month performance period are deemed to be STIs, even if the award is deferred for a longer period.

These definitions impact the movement in remuneration. If, for example, an organisation has made un-hurdled (time-vested) option grants in the past and subsequently introduces performance hurdles, then the nature of the grant changes from fixed remuneration to LTI, hence impacting the year-on-year trend. That is, fixed remuneration is reduced and LTI is increased.

There are two ways of estimating the change in remuneration over time. One is to analyse the individual percentage change in remuneration (incumbent weighted) and the other is to analyse the change in such aggregated statistics as the average and mean (remuneration weighted). In the first case, the change in remuneration for each CEO has equal weighting in the analysis. In the second, the changes in the remuneration of highly paid CEOs will have a stronger influence on the outcomes than the same percentage change for a lower paid CEO.

We use both methods in our analysis.

Companies were grouped using two criteria.  The first was company size and the second was GICS industry sector.

Company size was defined using market capitalisation and the companies were grouped in quartiles.

The following tables summarise the segmentation. There are thirty companies in each quartile group.



Change in Remuneration from 2007 to 2008

Using the incumbent weighted methodology, the median increases in TFR and TR are 11% and 15%, respectively.

The following table summarises the incumbent weighted increases in CEO remuneration between 2007 and 2008.


Changes in STIs and LTIs cannot be calculated accurately using same incumbent data because it is not possible to calculate the increase when an individual is paid an incentive in 2008, if no incentive was paid in 2007. Alternative analyses are included later in this paper.

As predicted by Guerdon Associates during the year, 30% of CEOs received lower total remuneration than for the prior period and 70% of CEOs received an increase in total remuneration.

The proportion of CEOs whose remuneration increased, decreased or stayed the same is shown in the graph below. CEOs who did not receive an STI or LTI in either year are included in the “same” category.


The remuneration weighted statistics vary from the above.

The median TFR increased by 19% and the median TR increased by 20%. These are based on the change in aggregated data for same incumbent CEOs from 2007 to 2008.

The median STI increased by 7% and median LTI increased by 11%. The statistics relating to STIs and LTIs are based only on the incumbents who received them.

As expected, TFR has experienced steady growth.

On average, STIs have not changed significantly, although some individuals have suffered a significant decrease in STI. The upward trend in LTI awards is particularly apparent in the frequency of large LTIs.

The following graph shows the inter-quartile ranges for TFR, STI and LTI for both 2007 and 2008.


Change in Remuneration Structure

Overall, at-risk remuneration has remained stable from 2007 to 2008.

There has been a small increase in the proportion of remuneration in LTIs and a similar reduction in the proportion in STIs.

The following table summarises the changes.


The overall trend changed when we analysed the remuneration mix by company size.

The smallest (i.e. Q1) companies, which historically have the smallest proportion of remuneration at risk, increased the proportion of remuneration at risk from 22% to 27% between 2007 and 2008. This was due to both an increase in the average STI and LTI and an increase of the proportion receiving STIs and LTIs.

The following table shows these changes.


Similar tables for Q2-Q4 companies are appended.

The following graph shows the proportion of remuneration that is TFR, STI and LTI over the two year disclosure period by company size quartiles.


The change in remuneration mix also varied by industry, as seen in the graph below.


The consumer sector and to a lesser extent the industrial sector have experienced a reduction in incentive remuneration. The materials and health care sectors have experienced a small increase in the proportion of remuneration at risk. Other sectors have remained relatively stable, although the balance between STI and LTI has changed in most sectors.

Health care, materials and financials have all increased LTIs at the expense of STIs. The noteworthy exception to this trend is the energy sector where STIs have increased at the expense of LTIs. In 2007 LTIs in the energy sector accounted for 33% of TR, which was the highest of all sectors. In 2008 LTIs accounted for 24% of TR, which is in line with the all-sector average (see table 4 above).

This is still a surprising outcome for an industry with a long business cycle and may reflect the strong demand for high performing executives in the energy sector over the past year.





© Guerdon Associates 2021
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