On a panel of leading executive compensation experts, Margaret Engel discusses some of the top executive compensation issues and trends including: the current public mistrust of executive compensation programs, the importance and the rigorous process of target goal setting, the challenges that many companies face with long-term performance awards, and the likely increase in the use of performance-based stock options in the future.

Compensation Advisory Partners (CAP) examined 2016 executive pay and company performance at 33 companies across five segments of the financial services industry: Wall Street Banks, Trust Banks, Regional Banks, Investment Banks, and Asset Managers.

2016 was an uneven year for the banking and capital markets space. Among our sample covering five industry segments, median Total Shareholder Return (TSR) for the year (+23%) was more than double that of the S&P 500 excluding financial companies (+11%). However, operating earnings were up only modestly (+2%), at median, as most of the increases in stock price came near the end of the year and appear to have been related to changes in investor sentiment following the election results. Median total CEO pay was flat year-over-year, aligning it more closely with operating earnings than TSR.

Compensation Advisory Partners (CAP) reviewed executive compensation pay levels and trends at 50 companies (Early Filers) that filed their most recent proxy statement between November 2016 and January 2017 (fiscal year ends from July 2016 to October 2016; 35 companies have September 30 fiscal year ends). Industry sectors reviewed include: Consumer Discretionary, Consumer Staples, Financials, Health Care, Industrials, Information Technology and Materials. Among these 50 companies, median Revenue was $6.1B, median Market Capitalization (based on each company’s fiscal year-end) was $9.0B and 1-year Total Shareholder Return, or TSR (based on each company’s fiscal year-end) was 18.4%.

Overall Findings

  • Performance: 2016 performance (based on Revenue growth, Pre-tax Income growth, EPS growth and 1-year TSR) was generally flat year over year.
  • CEO Pay: Median CEO pay was up 5.5% from 2015 due to increases in annual incentive payout and the grant date value of long-term incentives (LTI).
  • Annual Incentive Payout: Overall, median 2016 annual incentive payout was 104% of target which was consistent with 2015 results.
  • Annual Incentive Plan Design: Profit-based growth, Revenue growth and Cash Flow growth are the most common measures used in the annual incentive plan. Companies typically use 2 – 4 metrics to ensure executives are focused on overall company performance.
  • Long-Term Incentive Design: Performance-based awards are the most prevalent LTI vehicle although stock options and time-based restricted stock are also commonly used but to a lesser extent. Most companies use relative TSR as an LTI metric although we expect its use to plateau as proxy advisory firms like ISS begin to use financial performance in their pay-for-performance assessment.

2016 Performance

2016 was a year marked with global political uncertainty partly due to the Brexit vote in June, the U.S. presidential election in November and the continued unrest in the Middle East. Despite these challenges, 2016 financial performance was generally flat (+/- 3%) for the second year in a row. However, 2016 TSR performance was much stronger than 2015 performance despite market uncertainty. CAP reviewed Revenue growth, Pre-tax Income growth, EPS growth and TSR performance for the Early Filers and the S&P 500.

Financial Metric (1) 2015 Median 1-year Performance 2016 Median 1-year Performance
S&P 500 Early Filers S&P 500 Early Filers
Revenue Growth 2.3% 2.2% 2.1% 2.2%
Pre-Tax Income Growth 1.8% 1.5% 2.2% -2.8%
EPS Growth 5.0% 3.1% 4.2% 2.4%
TSR 3.4% 0.4% 14.9% 18.4%

(1) TSR and Financial performance for the S&P 500 is as of September 30, 2015 and September 30, 2016. Financial performance and TSR for Early Filers is as of each company’s fiscal year end.

CEO Total Direct Compensation

CEO actual total direct compensation increased modestly (5.5%) among Early Filers with CEOs in their role for at least two years (n=42) driven by increases in annual incentive payouts and the grant-date value of LTI awards. Annual incentive payouts, at median, were nearly 6% higher over prior year. Although year over year financial performance was relatively flat, companies typically adjust incentive plan metrics to exclude factors that may be outside an executive’s control (e.g., currency fluctuation) which can result in higher incentive plan achievement compared to GAAP performance. Median base salaries for CEOs in our sample were unchanged from prior year.

Annual Incentive Plan Payout

Actual annual incentive payouts in 2016 were around target, reflective of the relatively flat 2016 financial performance. Payout in 2016 was 104% of target at median which is similar to median payout in 2015 (102% of target). Median annual incentive payouts for 2016 and 2015 were lower than 2014 (110% of target); however, 2014 was a year of strong financial performance which resulted in above target annual incentive payouts.

Summary Statistics Annual Incentive Payout as a % of Target
2014 2015 2016
75th Percentile 125% 133% 137%
Median 110% 102% 104%
25th Percentile 92% 82% 82%

As would be expected, performance for companies with at or above target annual incentive payouts was stronger than that of companies with below target payout. Most noticeably, however, is that median Profit growth for companies with at or above target annual incentive payouts was significantly stronger than similar growth for companies with below target payouts; median Revenue growth was only modestly stronger for companies with at or above target payout. Median 1-year TSR performance for both groups was very strong in 2016. These results are directionally similar to 2015 performance with the exception of TSR which, for both above and below target payouts, was stronger in 2016 than 2015.

Financial Metric (1) 2015 Median 1-year Performance 2016 Median 1-year Performance (2)
Below target payout (n=23) At/above target payout (n=27) Below target payout (n=23) At/above target payout (n=26)
Revenue Growth -3.6% 7.5% -0.7% 3.5%
Pre-Tax Income Growth -4.1% 8.8% -13.2% 20.5%
EPS Growth -2.6% 12.2% -8.7% 16.3%
TSR -13.4% 14.8% 16.9% 20.0%

(1) Financial performance and TSR is as of each company’s fiscal year end.
(2) Excludes 1 company that eliminated its annual incentive program beginning in 2016.

Approximately 55% of companies provided a payout at or above target in 2016 which is consistent with 2015. Additionally, the distribution of payouts in 2016 is similar to that of the prior year which is consistent with generally flat year over year performance.

Incentive Plan Design

Annual Incentive Plan Design

Across all companies reviewed, Profit growth (typically EPS or Operating Income), Revenue growth, and Cash Flow growth were the most commonly used metrics in the annual incentive plan design. Typically, companies place more emphasis on profits with most allocating at least 50% of the total award on profit-based metrics.

Most companies use 2 – 4 metrics in the annual incentive plan design which allows companies to balance an executive’s focus on the many aspects that define its success. This approach also provides some risk mitigation so that executives are not concentrating on a single metric potentially at the expense of other meaningful financial measures. A minority of companies (8) in our sample use only 1 metric in the annual incentive plan, with most of these companies using a profit-based metric.

Long-Term Incentive Plan Design

Among early filers, performance-based awards are the most prevalent long-term incentive vehicle provided to executives as companies continue to ensure executive pay is aligned with longer term company and stock price performance. However, companies in our sample do continue to provide stock options and time-based restricted stock awards, although these vehicles reflect a smaller portion of total LTI (28% for stock options and 20% for time-based restricted stock). Most companies reviewed deliver equity in the form of 2 – 3 vehicles which helps to balance the link with longer term performance.

For companies that grant performance-based awards, the most common metrics are TSR, profit-based growth and return measures (e.g., ROE, ROA and ROIC). 67% of companies use TSR, 57% use a profit-based metric (with EPS used most often) and 31% use a return measure. Similar to annual incentive metrics, companies use multiple metrics (typically 2 – 3 metrics) in performance-based awards. Among the 12 companies that use only 1 metric, 50% use company financial performance (typically a profit-based metric) while 50% rely solely on relative TSR. However, TSR is most commonly used with other metrics or as an award modifier. Over the last several years, more companies have been incorporating relative TSR as a long-term measure to address multiple issues including: setting credible long-term goals, using measures that can be understood by participants and aligning with proxy advisory firms’ pay-for-performance assessments. We would expect that the use of TSR will plateau particularly as firms, like ISS, begin to use financial performance measures in their pay-for-performance assessments.


2016 performance, overall, was generally flat year over year which resulted in annual incentive payouts that were around target for the second year in a row and modest pay increases, through incentives, for the CEO. 2017 will likely be a year of uncertainty as political outcomes from 2016 (e.g., Brexit and the U.S. presidential election) may impact international trade deals, U.S. federal regulations and consumer confidence which could impact economic performance. We would expect many companies to take a wait and see approach before making wholesale changes to their annual or long-term incentive plan design.


Lauren Peek is a Principal at Compensation Advisory Partners. Joanna Czyzewski is an Associate at Compensation Advisory Partners.


The CAP 100 Company Research consists of 100 companies from 9 industries, selected to provide a broad representation of market practice among large U.S. public companies. In this report, CAP reviewed Pay Strategies, Annual Incentives, Long-Term Incentives, Perquisites, and Shareholder Friendly Provisions of these companies in order to gauge general market practices and trends.

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Annually, Compensation Advisory Partners (CAP) evaluates pay levels for Chief Financial Officers (CFOs) and Chief Executive Officers (CEOs). This year, the analysis is based on a sample of 100 companies with median revenues of $13 billion. For more information on criteria used to develop the sample of companies, please see Appendix.


  • Annual salary increases are increasing in prevalence for the third year in a row among CEOs and CFOs, with median increases of 2.5% and 3.9% respectively
  • Similar to prior years, salary increases are provided much more frequently to CFOs than to CEOs, with over three quarters of CFOs studied receiving a salary increase in 2015
  • The 2015 median increases in actual total direct compensation (i.e., cash plus equity) for both CEOs and CFOs were modest, 2.2% and 1.4% respectively
  • At median, there was no growth in actual bonuses, partly reflective of a weaker performance year in 2015 vs 2014
  • Median target bonus opportunities were flat for CEOs over the past 3 years; for CFOs median target bonuses were flat in 2015 after an increase from 2013 to 2014
  • Growth in long-term incentive opportunities at median was in the mid-single digits for both positions
  • CFO total compensation on an absolute basis approximates one-third of CEO total compensation, consistent with our findings in prior years
  • Long-term incentive program structure has remained consistent over the past few years; performance-based equity continues to represent the largest component of LTI for CEOs and CFOs

Study Results


In the last three years, we have seen a steady growth in the number of CEOs and CFOs receiving salary increases in a given year. Only 48% and 69% of CEOs and CFOs, respectively, received increases for the 2012-2013 period compared with 58% of CEOs and 77% of CFOs for the 2014-2015 period. Median 2015 salary increases were 3.9% for CFOs and 2.5% for CEOs.

% of Executives Receiving Salary Increases

2013 – 2014

2014 – 2015

No Increase

Receiving Increase

No Increase

Receiving Increase











2015 Salary Increases

Actual Pay Levels

Based on our findings, the median rate of increase in actual total direct compensation levels for both CEOs and CFOs was approximately 2% for 2015. The median increases over the last two years ranged between 3% and 5%. The lower increases in total compensation for 2014-2015 are partially a result of no increase in bonuses, at median, and only slightly higher single digit increase in long-term incentives.

Median Percentage Change in Pay Components

2013 – 2014

2014 – 2015

Pay Components










Actual Bonus





Long-Term Incentives





Actual Total Direct Compensation





As seen in the table above, the median 2015 increases by pay component were similar for both CFOs and CEOs. Similar to actual bonuses, median target bonuses remained flat for both CFOs (100% of base salary) and CEOs (150% of base salary).

Target Bonus as % of Salary







75th Percentile










25th Percentile





Median Salary Increase by Industry

Median Actual Total Compensation Increase/Decrease by Industry

Median salary increases in salary are generally aligned for CEOs and CFOs within each specific industry, except for the Consumer Discretionary and Materials industries. Among the Consumer Discretionary industry, the median CEO increase was 2.1% compared to the CFO median increase of 7.2%. In the Materials industry, the median CEO increase was 4.4% compared to the CFO median increase of 8.7%. The Energy industry increases were 0% for both CFOs and CEOs. The salary freeze in the industry comes as no surprise given that some companies in the industry implemented salary freezes for 2015 after oil prices collapsed.

Differences by industry were more pronounced when looking at actual total direct compensation. There were more decreases in CEO or CFO total actual compensation in 2015 compared to 2014, primarily driven by weaker company performance and the annual incentive award paid as a result of performance. The Energy industry was the single industry where both CFOs and CEOs experienced similar declines in compensation, at median. Some of the largest increases in compensation levels were observed in Consumer Discretionary, Healthcare and Materials.

Target Pay Mix

The structure of the overall pay program (salary, bonus, LTI) has remained largely unchanged since 2011. CEOs continue to receive less in the form of salary and more in variable pay components, especially LTI, than CFOs.

Long-Term Incentive (LTI) Vehicle Prevalence and Mix

We have seen very little change in the type of vehicles used to deliver LTI awards. Overall LTI mix also remains similar to the past several years. The majority of companies continue to use two different vehicles to deliver long-term incentives to CEOs/CFOs with approximately a quarter of companies studied using all 3 equity vehicles (stock options, time-based stock awards, and awards under a performance plan)

Performance plans account for roughly 50% of LTI awards on average. The other half of LTI is delivered almost equally between stock options and time-vested restricted stock awards. The overall weighting of performance-based awards (performance plans and stock options) for both CEOs and CFOs continues to range between 75% – 80%.








Stock Options





Time Vested Restricted Stock





Performance Plans






2015 was not as strong a performance year as 2014. Median revenue growth was -1% (vs 6% in 2014), net income growth was -1% (vs 9% in 2014) and total shareholder return was -2% (vs 16% in 2014). Overall total pay increases were also smaller than in 2014, which we believe were directionally aligned with performance. While salary and long-term incentive increases for CFOs were slightly higher in 2015, actual bonus amounts were flat. This pattern was similar for CEOs in the study.

We expect overall pay mix to continue to emphasize the variable, at-risk components of pay. We also expect the current approach to delivering long-term incentives, with an emphasis on performance-based LTI plans to continue. In this era of increased scrutiny and Say on Pay, we anticipate that aligning pay outcomes with company performance will continue to be an imperative for companies and Boards.


Sample Screening Methodology

Based on the screening criteria below, we arrived at a sample of 100 public companies with median 2015 revenue of $13B.


At least $5B in revenue for fiscal year 2015

Fiscal year-end

Fiscal year-end between 9/1/2015 and 1/1/2016

Proxy Statement Filing Date

Proxy statement filed before 3/31/2016


No change in CEO and CFO incumbents in the past three years

CAP’s Pharmaceutical Industry Report analyzes the executive compensation practices of 19 large pharmaceutical and biotechnology companies. As of December 31, 2015, the companies in our sample had median revenues of $23B and median market cap of $113B. In addition to reviewing the entire sample, we assessed U.S. companies (n=12) and non-U.S. companies (n=7) separately to discern trends in pay, performance and practices.

2015 Financial Results: Pharmaceutical companies experienced strong stock price appreciation and revenue growth relative to the broader market.

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CAP’s industry report is based on an examination of 19 companies in the Consumer Products industry with median 2015 revenue and market cap of approximately $18B and $46B, respectively.

The Consumer Products sector faced its challenges in 2015; 1-year Revenue and EBITDA growth were down slightly at median, while the S&P 500 as a whole experienced modest growth. Many of the Consumer Products companies operate in countries outside the U.S. and were impacted by the relative strengthening of the U.S. dollar in 2015. Despite the slight declines in financial performance, 1-year Total Shareholder Return (“TSR”) for companies in the Consumer Products industry was very strong (+17%) and significantly outpaced the S&P 500 which was flat overall (+0.6%). Strong TSR performance signals that the market may be more influenced by a Consumer Products company’s strategic direction and product innovation than short-term financial performance which can be impacted by macro-economic factors including a potential rebound in certain global markets compared to expectations at the end of 2014.

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