Executive pay increases by 3.5%
The average cash compensation of a top executive in a large, global corporation is 1.4 million Euros with an average increase of 3.5% compared to the previous year. The compensation includes a base salary of 681,000 Euros and a short-term bonus of 719,000 Euros gross per year. On average, base salaries increased by 3.1% and short-term bonuses by 4.2%.
These are the main findings of a global survey conducted by the executive search firm Pedersen & Partners among over 1,700 top executives in 330 companies in 17 countries. The survey covers top executives in the world’s largest companies with an average headcount of 133,000 employees, an average turnover of 42 billion Euros and average company profits of 4.1 billion Euros.
Table 1: Top Executive Compensation
Salaries Increase at Lower Rate
“Top executive compensation is increasing today at a slower speed compared to previous years,” says study author Conrad Pramboeck, Head of Compensation Consulting at Pedersen & Partners. “While base salary increased by 4 to 6% on average during the last 5 years, this rate has now dropped to just over 3%. In addition to that, the total cash compensation including short-term bonuses increased by almost 7% on average over the last 5 years, but is now only increasing at a rate of 3.5%,” says Pramboeck.
In most Western European countries and the United States, average salary increases for white-collar employees are between 3 to 4% on average. For this reason, even in the world’s largest companies, top executives are only receiving salary increases at about the same rate as their subordinate managers and employees.
Table 2: Salary Increases
Scope of Responsibility Matters
The size of the company is the most important factor when determining the level of top executive compensation. In general, the larger the company, the higher the salaries paid to top executives, reflecting a higher level of responsibility. “To put it simply: on average, a top executive’s salary increases by 600,000 Euros with every 50,000 employees,” says Pramboeck.
Table 3: Top Executive Compensation by Size
Company Performance Determines Executive Bonuses
The second determining factor for top executive compensation is the company’s performance. Most top executives are measured against company profits. While most top companies were very profitable last year, executives must meet ever-increasing company targets to qualify for bonuses. Therefore, even in highly profitable companies, executives receive a lower bonus if the EBIT has decreased compared to the previous year.
Table 4: Bonuses & Company Profits
”In the UK, executive compensation continues to be one of the most controversial and high-profile topics in business management, political, and media circles. Executive remuneration continues to rise at rates well above the average and the gap between leaders and employees continues to widen, with an increasing number of high-profile pay awards, “shareholder springs” and media commentaries. The position of Chair of the Remuneration Committee is becoming increasingly difficult to fill as the political and technical demands of the role become increasingly onerous. In terms of Executive Talent Attraction, pay (while not a totally dominant factor) is still a major driver in any hiring strategy. The relatively strong improvement seen in the UK economy in recent years has stimulated demand for exceptional leaders, particularly people who can grow and re-engineer organizations to be more competitive in the new globalized and digital world economy. The link between increased executive pay and performance is becoming an imperative in the UK market; i.e., when an organization performs well, executive pay increases are justified. New UK legislation, increased transparency, media scrutiny and shareholder pressure may have slightly slowed the rate of growth of executive compensation in the UK, but the perceived wisdom is that the trend will continue upwards for the foreseeable future”, says Paul Mewis, Client Partner at Pedersen & Partners
Western European and US companies offer their top executives similar compensation packages in terms of base compensation and bonuses. On average, the total cash compensation (including short-term bonuses) is between 1.4 and 1.5 million Euros. The greatest differences in compensation structure are seen in long-term incentives, which are mostly in the form of stock options. US companies grant their top executives stock options worth 447,000 Euros on average, while European top managers were only given stock options valued at 107,000 Euros on average.
Table 5: Compensation Structure
Table 5.1: Average CEO Compensation Worldwide
From a global point of view, top executive pay is highest in the United States and Western Europe. “Top companies in emerging markets, such as China, India or South Africa, still receive compensation significantly below the level of Western countries. However, their salaries are increasing at a much higher rate than in Western Europe and the United States,” says Pramboeck.
Top executive compensation is currently increasing by 4 to 5% on average in Western countries and between 7 and 10% on average in emerging markets.
About the Author:
Conrad Pramboeck is the Head of Compensation Consulting at Pedersen & Partners. Based in Vienna, Austria, he is responsible for consulting companies on all aspects of compensation, including providing companies with up-to-date market information on salary ranges and design of bonus systems across all industries and geographies. Prior to joining the firm, Mr. Pramböck held several senior positions in international consultancy firms. He started his career with a German Consultancy firm working in management consulting and later in the Compensation Consulting business unit based in Austria. For the following seven years he worked with one of the top Austrian Executive Search firms as the Head of Compensation Consulting. He was responsible for all international compensation consulting activities and developed and maintained an international compensation database in 40 countries.
Mr. Pramböck holds a PhD in Law from the University of Vienna. In addition to his native German, he speaks fluent English and has basic knowledge of French and Spanish.
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