As part of our coverage of executive pay - a area that wealth managers track as this can be an important marker of where new HNW clients come from - we report on data from the US about how the pandemic affected the numbers.
Pay growth for top executives at some of the largest US firms slowed last year as the pandemic hit, and bonus payments fell, a survey showed, shedding light on how this population cohort of affluent individuals has fared.
Willis Towers Watson’s Global Executive Compensation Analysis Team crunched the pay numbers on executives in S&P 1500 companies. There were smaller increases in both target and earned total CEO pay in 2020, increasing at the median by 4.7 per cent and 3.9 per cent, respectively. That is slower than the 6 per cent in target pay and 5.5 per cent increase in earned pay observed in the previous year and the lowest results since the 2015 to 2016 cycle.
The struggle to achieve or beat operating goal measures during the COVID-19 crisis led to another drop in overall annual bonus pay-outs, with the average bonus falling to 99 per cent of target, down from 102 per cent of target for 2019 performance. By contrast, earned LTI [long-term incentive] values for mid- and small-cap CEOs has experienced a seesaw effect in the past two years; S&P 400 CEOs had a 2 per cent fall in 2019, followed by a 14.7 per cent rise in the latest period, a swing of nearly 17 percentage points.
Wealth managers in the US, such as broker-dealers and RIAs, target a variety of client segments, including corporate executives – the bonuses and pay hikes C-suite figures receive can be important generators of new mass-affluent/HNW individuals.
Broken down by market capitalisation, there was a big gap between the larger and smaller firms. Large-cap CEOs saw the biggest increase in target pay, which rose 5.4 per cent at the median, while S&P 600 small-cap CEO pay grew just 3.7 per cent. Mid-cap CEO pay also grew modestly in 2020, increasing 4.4 per cent at the median.
Base salaries remained flat at the median for the first time in the firm’s study, as nearly half (47.5 per cent) of S&P 1500 CEOs received no increase in 2020. Only the healthcare, utilities, materials and consumer staples sectors showed any salary increase at the median in 2020.
The lack of growth in base salary is a departure from the typical 2 per cent to 3 per cent increases which have been observed the past several years; it is likely to be a by-product of pandemic-related salary freezes and reductions through to the end of 2020.
“While uncertainty in the economic and corporate governance landscapes lingers, performance-based awards will likely continue to be the primary element of CEO compensation programmes because they offer accountability from a pay-for-performance perspective; however, the question remains whether prevalence of stock option grants will continue to decline and the use of time-vested restricted stock grants will continue to increase,” the report said.