CEO Pay Decreased in 2022 for the First Time in at Least Three Years

The numbers contrast sharply with increases as high as 35% in 2021.

After receiving substantial pay increases in 2021, CEOs saw their income drop in 2022, according to Gallagher’s new report, “CEO and Executive Compensation Trends: 2023 Edition”.

The study of more than 2,830 companies found that in 2022, CEO pay decreased 7.3% and 2.7% for the overall Russell 3000® and S&P 500® indices, respectively — starkly contrasting with increases of 35.5% and 18.7% for 2021. (CEO pay increased 0.1% and 3.4% in 2020.)

“Weaker annual and long-term incentive awards contributed to a reversal in total compensation trends, and poorer stock performances accounted for much of the decline in CEO pay in 2022, because CEO compensation is often tied partly to investor returns,” James Reda, managing director of the Executive Compensation Consulting practice at Gallagher, a global insurance brokerage, risk management, and consulting services firm, said in a statement. “In particular, bonus payouts dropped noticeably for all sizes of companies. Long-term incentive (LTI) values bumped up slightly higher for companies with revenue below $1 billion. However, larger companies with revenue of $1 billion and higher showed reduced levels of LTI.”

According to the study, compensation committees in 2022 responded to economic conditions, regulatory changes, and shareholder scrutiny — all factors that led to worries about a potential recession and lower profits. As a result, executive pay increases became a concern at many companies. Given global stock market performance, the fact that annual and long-term incentives weakened last year demonstrates the pay-for-performance model is working at most companies, Gallagher researchers said.

Breaking down the numbers

While Russell 3000 CEO pay decreased by 7.3% in 2022, incumbent CEO pay decreased at a slightly lower rate of 7.1%. Contrary to Russell 3000 companies, incumbent CEO pay at S&P 500 companies actually increased slightly, by 0.5% year-over-year.

This difference suggests that companies continue to reward and strive to retain successful CEOs who can navigate the volatile business climate, according to the report. New CEOs hired into the role (either internally or externally) are less likely to receive the same level of compensation as their more tenured predecessors.

Meanwhile, unlike for CEOs, pay for other named executive officers (NEOs) remains headed in the positive direction, according to the report. Median pay for these executives saw small increases of 1.8% and 5.6% for the overall Russell 3000 and S&P 500 indices.

This NEO pay increases, contrasted with decreases for CEOs, suggests that the gap between CEOs and NEOs may be tightening.

“In 2024, compensation committees must balance the need to compete for top talent, reward performance, and avoid overpaying executives,” Reda said. “In addition, compensation committees cannot ignore how employees and the public will perceive their decisions.”