CEO pay rose nearly 10% in 2024 as stock prices and profits soared

S&P 500 CEO compensation packages rose nearly 10% in 2024 to a median of $17.1 million, driven by strong stock market performance and corporate profit growth, with a greater emphasis on stock-based awards tied to company performance metrics. The median employee compensation at these companies rose 1.7% to $85,419, widening the pay ratio gap, while security perquisites for CEOs also saw an increase. Axon Enterprise's CEO Rick Smith topped the survey with a $164.5 million package, reflecting the increasing trend of performance-based equity compensation.

Analysis

Chief executive compensation in the S&P 500 surged by nearly 10% in 2024, reaching a median of $17.1 million, a development propelled by a robust stock market performance, with the S&P 500 index rising over 23%, and a significant increase in corporate profits, which grew by more than 9%. This trend underscores a continued shift towards performance-linked remuneration, as a substantial portion of these packages comprises stock awards, often contingent on achieving specific multi-year targets related to stock price, market value, or operational profits. For instance, Axon Enterprise's CEO, Rick Smith, topped the survey with a $164.5 million package, almost entirely in stock awards tied to targets extending to 2030, reflecting the company's strong revenue growth (over 30% for three consecutive years) and record net income. However, this escalation in executive pay starkly contrasts with the 1.7% median increase in employee compensation (to $85,419), widening the CEO-to-worker pay ratio to a median of 192 years at half the surveyed companies. Companies like Carnival Corp. and McDonald's exhibit particularly high ratios, at nearly 1,300 and 1,000 times their median worker pay, respectively, raising concerns about internal equity and potential impacts on employee morale. While female CEOs saw a slightly higher median pay increase of 10.7% to $20 million, the overall pay gap issue persists. Additionally, companies are increasingly allocating funds towards CEO security, with median spending on such perquisites rising from $69,180 in 2023 to $94,276 in 2024, potentially influenced by events like the shooting of UnitedHealthCare's CEO.

Key Decisions for Investors

• Investors should critically assess company-specific CEO compensation structures, ensuring that the significant portion tied to stock awards is genuinely aligned with sustainable long-term value creation and not just short-term market upswings.
• Pay close attention to the CEO-to-worker pay ratio as a key ESG metric; exceptionally high ratios, such as those at Carnival Corp. (CCL) and McDonald's (MCD), may signal potential governance risks, impact employee morale, and attract negative public scrutiny.
• Monitor the rising trend in executive security expenditures, as substantial increases in these perquisites could impact overall administrative costs and reflect broader security concerns for corporate leadership.
• Given the strong performance linkage reported for companies like Axon (AXON), investors may favor companies where high CEO compensation is clearly justified by exceptional, multi-year financial and stock performance, but should remain vigilant about the overall quantum and its comparison to median employee pay.