CAP reviewed chief executive officer (CEO) pay levels among 50 companies with fiscal years ending between August and October 2023 (defined as the Early Filers). 2023 financial performance was generally flat, which resulted in median bonus payouts of around target. Median CEO total direct compensation was up +7%, largely delivered in the form of long-term incentive awards. This report covers 2023 financial performance, CEO actual pay levels and annual incentive payouts for the Early Filers.

Key Findings

Performance: 2023 median financial performance – as measured by revenue, earnings before interest and taxes (EBIT), and earnings per share (EPS) – was generally flat. This is in stark contrast to 2021 and 2022 where companies experienced tremendous growth after weaker 2020 performance (impacted by COVID). In 2023, median revenue grew slightly (+3.7%), and EBIT and EPS were flat (+0.2% and +0.3%, respectively). One-year total shareholder return, or TSR, was up double digits year-over-year (+11.6%) as stock prices rebounded from 2022.

CEO Pay: Median CEO total direct compensation increased +7% year over year, driven by an +11% increase in the grant-date value of long-term incentives (LTI). Median bonus payout was down year over year (-11%), reflective of more modest performance.

Annual Incentive Payout: Overall, 2023 median bonus payouts for CEOs were at target (i.e., 102% of target). Payout for the CEO was generally in line with the corporate funding factor (i.e., the percentage at which the annual incentive funds based on company performance), although companies who made a discretionary adjustment (up or down) were more likely to do so when funding was below target.

2023 Performance

Financial performance in 2023 was generally flat compared to 2022. Median revenue was up +3.7%, and EBIT and EPS were flat (up +0.2% and +0.3%, respectively). In contrast, performance in 2022 was strong, with median growth of +9 to +12% for revenue, EBIT and EPS.

TSR growth was strong in 2023 and, at median, ahead of 1-year financial performance. Median TSR was up +11.6% year over year. The stock market has been volatile post-pandemic and further impacted by macroeconomic issues such as inflation, higher interest rates, supply chain difficulties, and geopolitical instability. One-year financial and TSR performance for the Early Filers slightly underperformed the S&P 500, which experienced modest growth in 2023.

CEO Actual Total Direct Compensation

CEO pay continued to rise in 2023. Median total direct compensation – base salary plus actual bonus payout plus grant-date value of LTI – for the CEO was up +7%. This increase was largely delivered in the form of LTI (+11%). Long-term incentive awards are generally approved in the first quarter (i.e., September 2022 – January 2023 for Early Filers), and significant increases in award value are typically provided to recognize strong company and/or individual performance from the prior year.

For the second year in a row, median bonus payout was down year over year (-11%), reflective of the flat financial growth (although 2022 financial performance was strong, bonus payout was down from record highs in 2021). Median base salary was up (+3%) in 2023.

When considering the tenure of the CEO, those with less than three years of service received larger salary and LTI increases (than those who have been in their role for more than three years) to position pay more competitively with market. Interestingly, those who have less tenure also saw steeper declines in the bonus payout year over year, driven by above target-payouts in 2022 and well-below-target payouts in 2023. Approximately half of these companies have a transformation plan in place to improve performance in the coming years, which combined with actual payouts, suggested more volatile performance outcomes during this transition time. One-year change in pay for CEOs who have been in the role for more than three years aligned with overall findings for the Early Filers.

Annual Incentive Plan Payout

The median annual incentive payout was around target (102%) in 2023 and reflective of flat financial performance. This is down from 2022, with 75th and 25th percentiles also lower than prior year.

Approximately 50% of companies in our sample had an annual incentive payout that was at or above target in 2023 (median payout of 129% of target). These higher performing companies saw modest growth at median for revenue, EBIT and EPS growth, and had strong TSR performance. For companies with below target performance (median payout of 61% of target), median revenue growth was down slightly (-2.6%) while EBIT and EPS performance was down double digits (-15.6% and -11.4%, respectively). Median TSR increased for both groups. TSR was up significantly (+17.8%) for at or above target performers and up slightly (+2.3%) for below target performers.

In 2023, annual incentive payouts had a normal distribution with companies nearly evenly split in receiving payout either above or below target. This is a change from the prior two years when a majority of companies paid out at or above target. The distribution of payouts coupled with the median incentive payout around target suggests the difficulty in setting goals amid unpredictable macroeconomic factors.

Approximately one-third of Early Filers incorporate individual performance in the annual incentive payout for the CEO. This means that the CEO’s payout as a percentage of target may be higher or lower than that of the corporate funding factor (i.e., the percentage at which the annual incentive funds based on company performance). 70% of companies in our sample provided a payout to the CEO that was +/-5 percentage points from the corporate funding factor in 2023.

Nearly 15% of companies reduced the CEO’s payout from the corporate funding factor in 2023, which is up from 2022 (4% of companies) and 2021 (7% of companies). However, the average reduction in payout was lower in 2023 than in prior years. On average, companies that lowered the CEO payout in 2023 reduced it by 30 percentage points compared to 39 points in 2022 and 102 points in 2021. The number of companies that increased the CEO’s payout by more than 5 points above the corporate funding factor was up slightly from last year (17% in 2023 vs. 11% in 2022) but down from 2021 (when it was 33%). However, the increase in payout was more modest, with companies raising the CEO’s payout by, on average, 15 points in 2023 compared to 20 points in 2022 and 34 points in 2021.

Looking Ahead

2023 financial performance was generally flat compared to 2022. We continued to see an increase in total direct compensation for CEOs, although bonus payouts were down moderately year over year. These increases in total direct compensation were largely delivered through LTI and reflective of strong financial performance in 2022 or providing more competitive pay for newer CEOs. We anticipate that companies will provide modest increases in LTI in 2024 given 2023 outcomes although CEOs newer in their roles will likely continue to receive more significant increases. Given the continuing macroeconomic factors (U.S. presidential election, geopolitical unrest, continued supply chain disruptions), 2024 performance expectations are still largely unknown.

Early Filers’ Company Sample

CAP’s study reflects 50 companies with fiscal years ending between August and October 2023. Industry sectors reviewed include: Communication Services, Consumer Discretionary, Consumer Staples, Financials, Health Care, Industrials, Information Technology and Materials. Revenues for these companies ranged from $1.4 billion – $383 billion (median revenues of $11.9 billion); median fiscal-year-end market capitalization was $16.4 billion.

Kristine Stanners, Rebecca Friday and Grace Tan provided research assistance for this report.