How AP and Equilar calculated CEO pay

The AP/Equilar survey found median CEO pay at S&P 500 companies rose 5.9% to $17.7 million in 2025, with base salary up 3.9% to $1.3 million and stock awards up 11.5% to $10.9 million. Bonus pay increased 10.1% to $2.7 million and perks rose 17.7% to $310,369, while option awards were zero at the median. The article is a broad compensation analysis with limited immediate market impact.

Analysis

The bigger signal here is not executive generosity, but how boards are choosing to pay for control: equity-linked awards still dominate, while cash bonuses are rising faster than base pay. That combination usually means directors are trying to preserve headline alignment with shareholders while still rewarding CEOs for a market/regime that has been harder to improve on a pure operational basis. Second-order effect: this tends to reinforce the “manage for optics” behavior—more emphasis on short-cycle EPS, buybacks, and guidance discipline—because those are the metrics most likely to support annual grant value and bonus outcomes.

For investors, the relevant implication is that compensation inflation is a margin headwind for large-cap corporates, but a very modest one in isolation; the real issue is signaling. When median pay is rising mid-single digits while stock awards are up double digits, it suggests boards expect equity markets to keep underwriting leadership retention even if fundamentals are only mediocre. That can be bullish for mega-cap incumbents with durable free cash flow and a strong equity currency, but it’s a negative for slower-growth firms where retention spending dilutes per-share returns without improving execution.

The contrarian read is that high CEO pay is often treated as a late-cycle excess indicator, but here the more important observation is the persistence of equity-heavy packages despite a less forgiving operating backdrop. If boards were worried about a tougher 12-18 month environment, you’d expect more deferral into long-dated, performance-contingent structures or more outright cash restraint. Instead, they are still paying up to keep leadership stable, which argues that corporate America remains more confident in medium-term earnings resilience than the market narrative implies.

Key Decisions for Investors

• Stay constructive on large-cap quality compounders versus lower-quality cyclicals: long QQQ / short XLI over the next 3-6 months, since firms with stronger equity currency can absorb rising comp costs with less P&L damage and less dilution risk.
• Use the report as a governance screen: underweight companies with above-peer CEO pay growth but stagnant ROIC or margin trend; these names tend to overpay for retention without operational payoff over the next 4 quarters.
• For event-driven books, look for short setups in firms where compensation is rising but buybacks are also slowing; that combination often precedes multiple compression as investors start pricing management inefficiency.
• Favor mega-cap balance-sheet strength over mid-cap growth in long-only portfolios; if boards are paying more to retain talent, the winners will be names that can finance it from durable FCF rather than financial engineering.
• Do not short the market purely on “CEO pay is too high” optics; the better trade is selective and fundamentals-based. The risk/reward is poor for a blanket governance short, but attractive for pairing expensive pay growth against weak shareholder-return discipline.