CEO Incentive Escalation inflation?

Key Takeaways

Recent market commentary suggests there has been a persistent “upward drift” in incentive opportunities for ASX 100 CEOs. While headline market statistics show rising market medians, a deeper look into the data from our GuerdonData™ database reveals a far more nuanced picture.

• Domestic incentive structures are static: Controlling for CEO transitions shows that median short-term incentive (STI) and long-term incentive (LTI) opportunities for incumbent domestic ASX 100 CEOs stayed flat at 150% of Total Fixed Remuneration (TFR) from FY23 through to 2025.
• Offshore domiciles distort market averages: Foreign domiciled CEOs (residing in the US, UK, or elsewhere) have average LTI opportunities exceeding 410% of TFR. These global packages included in overall market distributions heavily skew upper-quartile data.
• Balance of pay mix remains firm: The median fixed-to-variable pay ratio across constant incumbents has held firm at 25:75 over the 3-year period, demonstrating continued board restraint or reluctance to pay more for performance for domestic CEOs.

Remuneration Committees evaluating FY27 executive pay proposals will want to critically evaluate aggregate proxy advisor benchmarks by controlling for incumbent longevity and executive domicile before altering incentive opportunities.

Methodology

Guerdon Associates analysed CEO incentive opportunities across FY23 – FY25 for current ASX 100 companies to test whether Australian incentive frameworks are undergoing structural pay inflation. Our methodology utilised our GuerdonData™ database, and applied the following criteria to eliminate distortion and isolate underlying trends:

• Incumbent consistency: Included only companies retaining the same incumbent CEO across all three years. This isolates structural market movements from ‘new hire’ premiums or discounts.
• Exclusions: Excluded Long-term Equity (LTE) from incentives. It is treated as fixed remuneration when analysing fixed-to-variable pay ratios. Removed outliers such as uncapped STIs or ultra-low fixed pay driven by founder holdings.
• Pay breakdown: Unlike proxy advisor analyses that lump variable remuneration into a single aggregated value, we separately evaluated STI and LTI relative to TFR.
• Domicile segmentation: We split the dataset into domestic incumbents vis-a-vis foreign domiciled incumbents (residing in the US, UK, or other) to evaluate the impact of global talent competition and foreign benchmarking.
• Maximum opportunity: STI and LTI values have been assessed at maximum face value opportunity.

Assessing the proxy advisor claims: Are incentive opportunities showing an aggregate upward drift?

Proxy advisor Glass Lewis recently observed that variable incentive opportunities for S&P/ASX 100 CEOs have risen on both an average and median basis over the past three years. Glass Lewis argues that this drift is propelled by top-end packages pulling away from the market, fuelled by expanding peer groups into higher-paying international (primarily U.S.) markets and unlisted competitors.

However, looking strictly at aggregate market values obscures the relevant market data that needs to be considered. When holding incumbent CEOs constant and separating incentive structures, variable incentive opportunities for domestic ASX 100 CEOs have remained remarkably stable.

Table 1: ASX100 Variable Incentive Opportunities as a % of TFR, FY23

Table 2: ASX100 Variable Incentive Opportunities as a % of TFR, FY24

Table 3: ASX100 Variable Incentive Opportunities as a % of TFR, FY25

Data insight: Why does the “upward drift” narrative need context?

1. Median opportunities: Across comparable ASX 100 CEOs, the median STI opportunity and median LTI opportunity as a percentage of fixed pay have remained unchanged at 150% of TFR across FY23, FY24, and FY25.
2. Upper quartile restraint: The 75th percentile LTI opportunity has held steady at 200% of TFR, while the 75th percentile STI opportunity actually decreased from 180% to 173% over the period.
3. Constant pay mix: The median ratio of fixed to variable pay has held firm at 25:75 across all three years.

If continuing CEO pay structures are largely static, what is driving the perceived upward shift identified by Glass Lewis? The data highlights two primary factors: CEO succession premiums and offshore CEO domiciles.

The offshore impact: How do international domiciles skew market metrics?

A key finding in our research is the outsized impact of foreign domiciled CEOs (residing in the US, UK, and elsewhere) on broad market statistics. When boards recruit internationally or oversee substantial global operations, variable compensation structures reflect local market norms, most notably US equity quantum practices.

Table 4: Foreign domicile CEO ASX100 Incentive Opportunities as a % of TFR, FY23

Table 5: Foreign domicile CEO ASX100 Incentive Opportunities as a % of TFR, FY24

Table 6: Foreign domicile CEO ASX100 Incentive Opportunities as a % of TFR, FY25

Offshore segment insight: Why does splitting for domicile matter?

• Massive LTI quantum: The average LTI opportunities for foreign domiciled CEOs exceed 410% of TFR (reaching 446% at the 75th percentile in FY23), compared to the broad sample average of ~236%.
• Elevated STIs: Median STI opportunities for offshore incumbents sit at 207% of TFR compared to 150% of TFR for the broader market.
• Skewing the upper percentiles: As Glass Lewis, and other observers, aggregate ASX 100 data and lump short- and long-term incentives together, the offshore packages lift the top-end (90th percentile) significantly upwards. This can give the illusion of systemic domestic pay drift.

What does this mean for the Australian market?

While proxy advisors raise valid points about the implications of international peer benchmarking, asserting that Australian executive incentive opportunities are experiencing a widespread upward drift oversimplifies the market data. Additionally, the answer to whether your benchmarking peer group should include international peers, or not, remains justifiable in the right context, and on a case-by-case basis.

Our findings demonstrate that:

1. Domestic pay policy remains disciplined: For continuing CEOs in domestic operations, target STI and LTI opportunities as a percentage of fixed pay have remained effectively flat over the FY23 – FY25 period.
2. Distortions are structural, not systemic: Market-wide increases in aggregate opportunity averages are driven primarily by a small cohort of foreign-domiciled incumbents with US/UK-aligned pay structures, alongside strategic re-benchmarking during executive transitions to attract external talent.

The Bottom Line

When assessing whether variable pay opportunities are escalating out of step with market expectations, Remuneration Committees and investors must look beyond aggregate data. Isolating incumbent dynamics, separating STI from LTI, and controlling for executive domicile are essential steps in determining whether an incentive framework is truly inflating or simply reflecting competitive market realities.