A CEO’s prior position impacts her current pay
07/11/2022
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Previous Guerdon Associates research confirmed that, over the last two years, external hires come at a higher cost to shareholders than internal promotions. But both were less costly than retaining the current CEO (see HERE)

Guerdon Associates has expanded this research covering remuneration for internally promoted CEOs in ASX 300 companies over May 2018 to June 2022. Internally promoted CEOs were categorised and analysed based on their prior position within the company:

  1. Chief Operations Officer (COO)
  2. Chief Financial Officer (CFO)
  3. Business Unit Head (BUH)
  4. Deputy CEO
  5. Commercial positions, including Sales or Marketing positions that met certain criteria

The key takeaways from the research are:

  • On the whole, the median promoted incumbent received a lower TFR but the same maximum STI and LTI opportunity (as a % of TFR) as the previous CEO.
  • The median promoted COO received a lower TFR, relative to the previous CEO, than promoted CFOs and BUHs.
  • The median promoted BUH received a lower maximum STI opportunity (as a % of TFR), relative to the previous CEO, than promoted CFOs and COOs.

Table 1 shows the number of internally promoted CEOs based on the incumbent’s previous position.

Table 1: Number of ASX 300 promoted CEOs based on incumbent’s previous position

Statistic

CFO

COO

BUH

Deputy CEO

Commercial

Overall

Count

8

9

13

2

3

35

% of Total

23%

26%

37%

6%

9%

100%

 

The majority of promoted individuals were from COO and BUH positions which can operate similarly to the CEO position with profit and loss accountability albeit of a smaller scale. The Deputy CEO position is the least common and primarily used by companies which have identified a CEO successor in advance.

Table 2 shows the promoted incumbent’s total fixed remuneration (TFR) as a percentage of the previous CEO’s TFR, categorised by the new incumbent’s previous position.

Table 2: Promoted incumbent’s TFR as a percentage of the previous CEO’s TFR

Statistic

CFO

(n=8)

COO

(n=9)

BUH

(n=13)

Deputy CEO

(n=2)

Commercial

(n=3)

Overall

(n=35)

Average

89%

88%

90%

94%

91%

89%

25th Percentile

84%

75%

83%

82%

50th Percentile

88%

79%

90%

94%

94%

89%

75th Percentile

93%

96%

96%

97%

 

A promoted COO received a lower TFR, relative to the previous CEO, than promoted CFOs and BUHs.

Table 3 shows the promoted incumbent’s maximum short term incentive (STI) opportunity (as a % of TFR) as a percentage of the previous CEO’s maximum STI opportunity, categorised by the new incumbent’s previous position.

Table 3: Promoted incumbent’s maximum STI opportunity (as a % of TFR) as a percentage of the previous CEO’s maximum STI opportunity (as a % of TFR)

Statistic

CFO

(n=8)

COO

(n=9)

BUH

(n=13)

Deputy CEO

(n=2)

Commercial

(n=3)

Overall

(n=35)

Average

98%

98%

89%

100%

100%

94%

25th Percentile

97%

88%

80%

86%

50th Percentile

100%

100%

92%

100%

100%

100%

75th Percentile

100%

100%

100%

100%

 

The median promoted incumbent is eligible for the same maximum STI opportunity (as a % of TFR) as the prior CEO for all positions except for BUHs, which have a lower STI opportunity.

Table 4 shows the promoted incumbent’s maximum long term incentive (LTI) opportunity (as a % of TFR) as a percentage of the previous CEO’s maximum LTI opportunity, categorised by the new incumbent’s previous position.

Table 4: Promoted incumbent’s maximum LTI opportunity (as a % of TFR) as a percentage of the previous CEO’s maximum LTI opportunity (as a % of TFR)

Statistic

CFO

(n=8)

COO

(n=9)

BUH

(n=13)

Deputy CEO

(n=2)

Commercial

(n=3)

Overall

(n=35)

Average

110%

115%

95%

95%

94%

104%

25th Percentile

95%

100%

85%

92%

50th Percentile

106%

100%

100%

95%

100%

100%

75th Percentile

113%

130%

100%

104%

 

The median promoted CEO is eligible for the same maximum LTI opportunity (as a % of TFR) as the prior CEO for all positions except for the median CFO with a higher LTI opportunity.

Table 5 shows the promoted incumbent’s maximum total incentive opportunity (as a % of TFR) as a percentage of the previous CEO’s maximum total incentive opportunity, categorised by the new incumbent’s previous position.

Table 5: Promoted incumbent’s maximum total incentive opportunity as a percentage of the previous CEO’s maximum total incentive opportunity

Statistic

CFO

(n=8)

COO

(n=9)

BUH

(n=13)

Deputy CEO

(n=2)

Commercial

(n=3)

Overall

(n=35)

Average

103%

109%

89%

98%

100%

99%

25th Percentile

96%

97%

85%

90%

50th Percentile

100%

100%

93%

98%

100%

100%

75th Percentile

107%

111%

100%

100%

 

Table 6 shows the promoted incumbent’s maximum total remuneration as a percentage of the previous CEO’s maximum total remuneration, categorised by the new incumbent’s previous position.

Table 6: Promoted incumbent’s maximum total remuneration as a percentage of the previous CEO’s maximum total remuneration

Statistic

CFO

(n=8)

COO

(n=9)

BUH

(n=13)

Deputy CEO

(n=2)

Commercial

(n=3)

Overall

(n=35)

Average

89%

109%

85%

92%

90%

93%

25th Percentile

83%

73%

82%

79%

50th Percentile

90%

79%

84%

92%

90%

85%

75th Percentile

98%

100%

96%

100%

 

Internally promoted CEOs tend to have a lower total remuneration opportunity than their predecessors.

© Guerdon Associates 2022
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