Study Shows CEO Pay Up for Second Year in a Row

The 2012 proxy season is in full swing, and there’s still a long way to go before all of the year’s say-on-pay votes are tallied. But as we wait to see how much shareholder approval (or disapproval, as the case may be) amasses for executive compensation schemes, a new report shows rising CEO pay in the Russell 3000 index for the second year in row.

Total realized pay in 2011 went up 15 percent at the median from 2010 (and increased more than 44 percent on average). That follows a 28 percent increase at the median the year before—“again marking a double-digit surge,” according to the “2012 Preliminary CEO Pay Survey” from GMI Ratings.

In contrast, “for each of compensation years 2008 and 2009, total realized pay at the median was lower than the year before,” the report states. GMI found that compensation in 2008 was down 6.38 percent from the previous year, and in 2009 was down 0.28 percent.

The total realized compensation measured by GMI includes equity. Meanwhile the total annual compensation figures for 2011—which exclude equity—climbed “more than 3 percent at the median and just over 10 percent on average,” according to the report.

What’s behind these increases? Well, it looks like equity granted during the recent financial crisis—when stocks, in general, were down—is starting to pay off, according to GMI research associate and report author Greg Ruel. So far, the data “indicates that gains made from large stock options and restricted stock are fueling CEO pay as company stock prices rebound.” The report states:

Indeed, much of the equity granted in 2008 and 2009, when companies had depressed stock prices, is vesting this year and will continue to vest over the next several years. Many companies granted more equity when stock prices were down in order to meet a target compensation figure, setting the stage for higher profits in 2010, 2011, and beyond.

Yet the authors of the report also note a new trend emerging from the 2011 pay data. When compensation figures went up in 2010, the increases “were most pronounced at the largest companies in the S&P index,” they write. But for 2011, the biggest increases (at both the median and the average) seem to be coming from mid-cap companies.

Small-cap companies, too, are “outpacing the S&P 500 in annual compensation increases at both the media and average,” the authors say. Digging down a little deeper, the report finds that:

On average, small-cap and mid-cap companies saw total realized gains of 52 percent and 55 percent, respectively, since 2010. These increases are more than 20 percent higher than at S&P 500 companies (with 31 percent). At the median, small-cap companies saw realized compensation increases of almost 24 percent, significantly more than at mid-cap companies (15 percent) and S&P 500 companies (14 percent).