CHICAGO--(BUSINESS WIRE)--2015 middle market executive compensation trends foreshadowed momentum companies are seeing in 2016. In Q2, the National Center for the Middle Market reported 7.2 percent revenue growth over the previous year, and while companies entered the year with some caution, 2015 pay reflected improving performance. According to the BDO 600: 2016 Survey of CEO and CFO Compensation Practices of Mid-Market Public Companies, middle market CEO compensation increased by 3.2 percent in 2015, reaching an average of $3.8 million, and CFO compensation increased by 4.1 percent, reaching nearly $1.5 million. While the increases are moderate, middle market executives fared better than employees overall, who received an average 2.9 percent salary increase in 2015, according to the Economic Research Institute.
Continuing the trend in pay-for-performance, 63 percent of 2015 CEO pay was in long-term incentives. CFO pay, on the other hand, is more evenly split with 55 percent in long-term incentives and 45 percent in annual cash. The top job at middle market companies continues to out-earn other C-suite executives: Total compensation for CFOs averaged about 38 percent of total CEO pay.
“Executives at middle-market companies are cautiously bullish,” says Randy Ramirez, Managing Director in the Global Employer Services practice at BDO USA, LLP. “Compensation increases reflect a modest but positive year, and despite a few economic challenges and uncertainty around election outcomes, 2016 growth may even be better.”
Tech, Healthcare, Real Estate & Energy Execs Earn Top Pay
As technology continues to disrupt and enhance business across all industries, tech companies are seeing strong results. Technology CEO and CFO pay surpassed other industries in 2015, increasing 19 percent to $5.7 million and 13 percent to $2 million for CEOs and CFOs, respectively. The differences in founder-CEO pay packages may be a contributor to the industry’s leading compensation, as well as the inherent volatility in technology equity.
The banking sector, amid continued increased scrutiny of executive pay spanning almost 10 years and recent high-profile clawbacks, saw the second-highest increase in CEO pay, rising 8 percent to $751,174, but still posted the lowest total compensation among the industries studied. Healthcare CEOs narrowly edged out real estate CEOs for the second-highest compensation. Significant transformation and financial and operational challenges in the healthcare industry, however, did not translate into higher CFO compensation. Among CEOs, modest decreases were also seen in the energy and retail sectors as the former contended with industry contraction and macroeconomic factors, and the latter with headwinds in consumer spending and business strategy.
Still, it’s not all bad news for the retail and energy industries. Retail CFO pay increased a notable 38 percent, largely as a result of higher bonus payouts and larger stock grants. Despite a 6 percent decrease in pay, energy CFOs were still the third-highest paid among all industries.
| CEO 2015 | CEO 2014 | Change | CFO 2015 | CFO 2014 | Change | |||||||||||||||||||
| Energy | $4,197,580 | $4,393,003 | -4% | $1,806,917 | $1,916,982 | -6% | ||||||||||||||||||
| Financial Services - Banking | $751,174 | $696,056 | 8% | $388,651 | $359,410 | 8% | ||||||||||||||||||
| Financial Services - Non-Banking | $3,632,586 | $3,413,887 | 6% | $1,291,575 | $1,373,444 | -6% | ||||||||||||||||||
| Healthcare | $5,068,727 | $4,972,896 | 2% | $1,667,624 | $1,754,846 | -5% | ||||||||||||||||||
| Manufacturing | $3,214,750 | $3,157,630 | 2% | $1,237,240 | $1,136,733 | 9% | ||||||||||||||||||
| Real Estate | $5,052,096 | $5,050,982 | 0% | $1,910,658 | $1,837,489 | 4% | ||||||||||||||||||
| Retail | $2,968,313 | $3,089,026 | -4% | $1,255,812 | $910,758 | 38% | ||||||||||||||||||
| Technology | $5,691,652 | $4,801,178 | 19% | $2,006,873 | $1,771,074 | 13% | ||||||||||||||||||
“Executive compensation plans continue to be hotly debated in the public as industries like financial services and healthcare grapple with increased scrutiny from stakeholders, lawmakers and consumers around pay practices and performance with continued calls for even more transparency. We expect performance metrics will continue to grow in importance, as will communication plans to help earn shareholder approval,” says Ramirez.
Pay Mix Reflects Industry Realities
Technology executives continue to see the largest percentages of stock and long-term investments in their pay packages, while non-banking financial services executives earned a more mixed package with bonuses making up roughly one-third of their overall compensation. Banking executives earned the highest percentage of their pay in salary as the only industry to see more than 50 percent of both CEO and CFO pay in cash. Overall, banking CEOs earned an average of 77 percent in cash and 23 percent in long-term incentives, a notable difference from the average across all companies (37 percent cash; 63 percent long-term incentives). This reflects the continued pressure on banking equity as the underlying vehicle for executive pay as well as CEO demands for more guaranteed compensation to lead in a challenged industry.
Higher Pay & Higher Risk in Large Companies
While executive pay continues to correlate with company size, the survey revealed a few notable differences in category pay trends. CEO pay increased the most at mid-sized companies in the study, rising 6 percent over 2014; however, CFO pay increased the most (6 percent) at the largest companies. While total compensation is highest at larger companies, so too is the proportion of variable compensation in the form of bonuses, stock and long-term incentives. Among the largest companies, just 15 percent of CEO pay is salary, compared to 24 percent for smaller companies. For large-company CFOs, 22 percent of pay is salary, compared to 34 percent for smaller companies.
| Company Size | 2015 CEO Pay | 2014 CEO Pay | 2015 CFO Pay | 2014 CFO Pay | ||||||||||||
| $100 million - $500 million | $2,324,230 | $2,300,565 | $964,824 | $963,047 | ||||||||||||
| $500 million - $1.25 billion | $4,035,853 | $3,809,646 | $1,425,502 | $1,378,205 | ||||||||||||
| $1.25 billion - $3 billion | $5,187,866 | $5,140,102 | $1,994,808 | $1,883,549 | ||||||||||||
About The BDO 600: 2016 Survey of CEO and CFO Compensation Practices of Mid-Market Public Companies
The BDO 600: 2016 Survey of CEO and CFO Compensation Practices of 600 Mid-Market Public Companies examines CEO and CFO compensation trends in publicly traded companies with annual revenues ranging from $100 million to $3 billion in the energy, healthcare, manufacturing, real estate, retail and technology industries; and publicly traded companies with assets ranging from $100 million to $6 billion in the banking and financial services industries. The study includes proxy statements that were filed between March 2015 and March 2016.
*Material discussed is meant to provide general information and should not be acted on without professional advice tailored to your firm’s individual needs.
About BDO’s Global Employer Services Practice
BDO’s Global Employer Services practice offers an experienced and dedicated team of professionals who operate nationwide to seamlessly provide a comprehensive array of services to address client needs.
Our team provides tax, accounting, and consulting services for all types of compensation arrangements, including cash and equity incentives, merger and acquisition related issues, employee stock purchase plans, qualified and nonqualified plan arrangements and other related services.
About BDO USA
BDO is the brand name for BDO USA, LLP, a U.S. professional services firm providing assurance, tax, financial advisory and consulting services to a wide range of publicly traded and privately held companies. For more than 100 years, BDO has provided quality service through the active involvement of experienced and committed professionals. The firm serves clients through 63 offices and more than 450 independent alliance firm locations nationwide. As an independent Member Firm of BDO International Limited, BDO serves multi-national clients through a global network of 1,408 offices in 154 countries.
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