Chief executive pay is on the rise once again, and the climb in stock prices likely has something to do with it. According to a report by the Wall Street Journal, median pay among chief executives at 104 top American companies climbed by 6.8% over the course of fiscal year 2016. This brought the median pay level for those CEOs to $11.5 million for that year, according to the analysis. Could this be part of a larger trend that is pointing away from the postrecession stagnation of recent years? Or is it a localized event tied to the recent success of the stock market?
Two Times As Many Companies Increased Pay
According to the report, twice as many of the companies in question increased the pay levels for their chief executives as compared with those that reduced it. That is not to say, however, that all top-level executives of the biggest companies saw pay increases in the past year. Apple, Inc.'s Tim Cook and General Electric Co.'s Jeff Immelt both sustained large pay cuts in the past few months, for instance.
The survey of American companies covered about 20% of the S&P 500 and reveal that the trend of decreases in CEO pay found in 2015 may have just been temporary. In fiscal year 2015, for example, median annual salaries for a similar group of CEOs had fallen to about $10.8 million. This represented either a pay cut or a raise of no more than 1.5% for most of the CEOs in question at that time. With median salaries pushing $12 million in some cases for last year, though, that seems to have shifted.
Links to the Stock Market
Corporate profits and stock price climbs likely contributed to the higher pay levels last year. Those companies in question posted median total returns of about 17% for fiscal year 2016, a huge step up from 2015's return of 4.5% for the same group. The total return includes both changes to the share price of each company's stock as well as dividend payments for the time period.
In many cases, CEOs received increased stock or stock options as part of their heightened pay. Institutional Shareholder Services, a proxy advisory firm, has indicated that increasing equity awards have outpaced the declines found in cash incentive pay. Thus, while cash bonuses have fallen by approximately 1.4% for the companies in question, stock awards have climbed by 7.4%, with options rising by 3%.
The biggest question on the minds of investors may now be whether these latest results are signs of strength in the months to come, or if the increased CEO pay levels suggest a reflection of past successes which may not continue.