CEO base salaries were projected to increase 3.3 percent this year, according to the latest executive pay practices survey from executive compensation firm Pearl Meyer. That’s not far from the historic 3 percent norm.
The modern exception was when the economy took a downturn during the COVID-19 pandemic, and many companies were not increasing salaries or were imposing pay cuts, said Bill Reilly, managing director at Pearl Meyer. Then, the labor market tightened up.
The labor market remains relatively strong, Reilly said. “The demand for talent is there,” he said.
CEO compensation isn’t limited to base salaries. A meaningful portion of executive compensation is variable, including long-term incentives like stock awards and short-term incentives like bonuses.
Many public companies aim to have at least half of an executive’s pay be performance-based, Reilly said. Most companies include both long- and short-term incentives.
“They’re recognizing that both are important,” Reilly said. This keeps a portion of pay tied to long-term performance but also incentivizes retention.
Reilly said most companies surveyed were holding their incentive plans steady this year, although companies must remain flexible. Tariffs, for instance, can impact incentive plan goal-setting, he said.
“We still expect most companies will take a wait-and-see approach as it relates to potential use of discretion for year-end incentive award determinations,” the consultant said.
Not every company has the same compensation philosophy. “In a sample of six or seven companies, you probably have a range of philosophies and pay structures,” Reilly said.