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The Executive Edition
The Executive Edition 2015 No. 2
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in the news
in the news
Shareholders score again as financial results climb
1 Cooking up a better pay mix: active shareholders emerge as a new ingredient
After a record year in 2013, when shareholders earned a total shareholder return (TSR) of 34.6 percent, it was difficult for companies to have a comparable banner year. But performance in 2014, while not as spectacular as in 2013, was still a very solid TSR of 16.6 percent. Shareholders had consistent growth over the past two years and CEO pay followed suit.
5 Performance share awards: design considerations 8 Private equity firms: compensating the executives of portfolio companies
10 Employment contracts, severance and change-incontrol provisions
Cooking up a better pay mix: active shareholders emerge as a new ingredient Findings from The Wall Street Journal/Hay Group 2014 CEO compensation study By Steve Sabow
Copyright © 2015, Hay Group. All rights reserved in all formats. This publication is designed to provide accurate and authoritative information with regard to the subject matter covered. If legal, tax, or accounting advice is required, the services of a person in such area of expertise should be sought.
In particular, firms made pay mix adjustments. Overall, 2014 turned out to be a good year for a majority of the 300 CEOs looked at in the study.
For the second year in a row, in 2014 companies achieved solid gains in performance as chief executive officers (CEOs) watched their pay rise. In the say-on-pay era, shareholders’ views are being heard throughout the year as companies reach out to engage with them. After listening to the expressed concerns and recommendations, many firms implemented various changes to their executive compensation programs.
Overall, companies were profitable in 2014, with a 6.6 percent jump in net income. In this age of “pay-forperformance,” it is likely that when a company is profitable, its CEO’s annual pay will rise. As a result of this performance, CEOs saw their salaries grow 2.0 percent to $1.2 million while annual incentives rose 4.3 percent to $2.5 million, yielding a 4.1 percent increase in median annual compensation (salary + annual incentives) to $3.7 million. Given the high TSR figures, companies overall could have justified much larger long-term incentive (LTI) awards. However, they generally exercised restraint, as CEO LTI grants in our study were up a median of 5.6 percent in 2014 to $8.1 million, and total direct compensation (TDC, composed of salary + annual incentives + LTI) also increased a respectable 4.6 percent to $11.8 million.
The Executive Edition
2014 CEO compensation changes and values 15.0%
12.0% 9.0% 5.6%
To $1 tal 3, co 56 m 3, p 35 5
To $1 tal 1, dir 79 ec 8, t 32 2
in c $8 en ,1 tiv 03 es ,7 58
To ta $3 l an ,6 nu 74 al ,6 28
in c $2 en ,5 tiv 10 es ,9 88
Ba $1 se s , 2 ala 35 ry ,6 93
Individual values are medians that should not be added
In a methodology change this year, Hay Group and The Wall Street Journal are reporting pay figures as they are disclosed in the Summary Compensation Table of the annual proxy statement. After adding in the change in nonqualified deferred compensation earnings plus the change in pension value, as well as all other compensation, total CEO compensation was up 13.5 percent to $13,563,355.