Thursday, March 19, 2020

We at Calcbench are as watchful as anyone else about coronavirus and its effects on society and the capital markets. We hope all our subscribers are safe and well.

That said, we are also committed to going on with life and financial analysis, too. So today we have released our latest report on executive compensation, looking at compensation data among all publicly traded firms for 2010 to 2018.

The big conclusion: compensation for the 100 best-paid named executive officers soared away from all others during the 2010s — and yet, by other metrics, executives might still have been under-paid relative to the performance their companies delivered during that time.

The report, “Executive Compensation: What executives get, and whether they’re worth it,” examined compensation data for all U.S.-listed firms (roughly 4,500 businesses) for 2010 through 2018. Our findings:

  • Among all firms, the average total compensation for named executive officers increased by 55 percent, from $1.94 million in 2010 to $3 million in 2018.
  • Average total compensation for the 100 best-paid executives, however, started at far higher levels and more than doubled, $30.8 million in 2010 to $66.4 million by 2018.
  • By 2018, the compensation for those 100 highest-paid executives accounted for 15 percent of all executive compensation reported by more than 4,500 firms.
  • As fast as executive compensation grew, among large firms, financial performance metrics for large firms grew even faster. For the S&P 500 and large accelerated filers (those with a market cap above $750 million), return on assets (ROA) and return on equity (ROE) both grew more quickly than average total compensation.
  • Equity awards accounted for an increasingly large share of total executive compensation over time. In 2010, equity awards accounted for 29.6 percent of average total compensation across all firms as a whole. By 2018, equity awards accounted for 41 percent.

The findings raise some interesting questions about executive compensation. For example, why does growth in ROA and ROE exceed growth in compensation at larger firms, but not smaller ones? Perhaps net income grew more sharply for large firms than for smaller ones, and net income is what pushes up ROA?

Or another question: if executives are paid for increasing the firm’s value to shareholders — which is the conventional wisdom in corporate finance and governance circles — then as much as executive compensation rose in the 2010s, were executives at larger firms still underpaid, since the two most common metrics of firm value increased even more?

Our point with this report isn’t to answer questions like that. In fact, we were quite surprised by some of the results, such as ROA and ROE rising faster than average total compensation.

But with the granular data Calcbench has on salary, cash bonus, share grants, option grants, pension contributions, and other forms of compensation, we were able to do a comprehensive trend analysis. It’s great to be able to find and study all the data for all firms.

Calcbench will be compiling 2019 executive compensation data over the next several months and will be updating this first report. Meanwhile, visit www.calcbench.com/executivecomp to learn about the elements of executive compensation, how the Top 100 NEOs compensation have fared, and how CEO to company performance has changed over time.


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