Mid-Market CEOs, CFOs See Double-Digit Pay Increase – BDO Study

November 2021

Rosy Lum
The Bliss Group
(646) 846-0809
rlum@theblissgrp.com
 

Board director compensation rises 2.3% overall

  • CEOs, CFOs see largest pay increase in the last 5 years
  • Executive compensation increase is highest in the retail and healthcare industries 
  • The number of women on boards continues to rise

Chicago, IL — BDO USA, LLP has released two reports, one on CEO and CFO compensation and one on board compensation, which explore how compensation levels and practices are responding to the economic fluctuations prompted by the pandemic.
 

2021 Study of CEO and CFO Compensation Practices of 600 Mid-Market Public Companies

After a brief pullback in executive compensation as a result of the global pandemic, CEO and CFO pay levels have rebounded, with executives in the retail and healthcare industries seeing the highest overall compensation levels, according to The BDO 600: 2021 Study of CEO and CFO Compensation Practices of 600 Mid-Market Public Companies. This report analyzes the BDO 600 companies' 8K SEC filings filed between April 2020 and March 2021.

In aggregate, CEO and CFO pay increased by 12.1% and 10.1%, respectively, in fiscal year 2020, which is the period that the April 2020–March 2021 proxies cover. This reflects total direct compensation (TDC), which includes salaries, bonuses and long-term incentives (LTIs) and represents the largest increase in the last five years. The largest increase CEOs saw in the last 5 years was 4.7%, making 2020 pay increases 2.5x higher, and for CFOs was 4.4%, making 2020 pay increases 2.3x higher.

Pay is highly correlated with company size: Average CEO TDC ranges from about $2.6 million for companies in the smallest size group to $5.6 million for companies in the largest size group. Average CFO TDC ranges from about $1.2 million for companies in the smallest size group to $2.3 million for larger companies.

“Executive pay is weighted more heavily with equity, and many of these awards were determined and granted prior to the onset of the pandemic in the U.S.,” said Jason Brooks, Managing Director of BDO’s Global Employer Services – Compensation Consulting Practice. “This helped counterbalance any decrease in salaries or bonus payouts as a result of individual company performance in 2020.”

Executive pay did see an initial pullback during the pandemic, according to our report last year, and while it appeared that executive pay levels might decrease, review of the 2021 proxies revealed CEO salaries increased by 1.5%, total cash compensation (TCC) by 11% and TDC 12%. CFO salaries increased by 4%, TCC by 8% and TDC by 10%.

Compensation levels also varied significantly by industry, with CEOs in the retail industry seeing a nearly 20% increase in average TDC, the largest of any industry, amounting to TDC payout of $3.6 million. Many retail companies paid low or no bonuses in the prior year; however, there are some that made additional or larger equity grants to make up for decreases in salaries and bonuses and reward for the rebound that developed during the pandemic.

The increase that healthcare and life sciences CEOs saw took second place at 16.6%, with CEOs seeing $5.7 million in TDC. Manufacturing followed at 16.3%, or $4.1 million in TDC. The energy industry, which once enjoyed the highest average compensation across industries, saw the lowest average increase in executive compensation: CEOs saw a 6.5% increase over the prior year, at $3.9 million, and CFOs saw a 0.1% increase at $1.8 million.
 
CEO and CFO Year-over-Year Change in TDC
Industry CEO CFO
Retail 19.9% 19.6%
Healthcare and life sciences 16.6% 9.2%
Manufacturing 16.3% 10.1%
Technology 14.1% 16.1%
Real estate 9.5% 11.0%
Financial services–banking 8.7% 7.2%
Financial services–nonbanking 5.2% 6.1%
Energy 6.5% 0.1%
 
Though retail CFOs saw the highest increase in TDC compared to all other industries studied, technology CFOs saw the highest average compensation at about $2.8 million; CFOs of financial services‒banking companies fall on the lowest end at around $489,000.

The global pandemic and heightened focus on ESG (environmental, social and governance) issues have amplified public scrutiny of executive pay levels, which, in light of the executive pay performance, further emphasizes the need for companies to develop strategies to link executive compensation and effective leadership.

Our study reports compensation for three groups of companies based on size:
 
Size Category Revenue Range Asset Range (Financial Services)
Group A $100 million-$500 million $100 million–$1.25 billion
Group B $500 million–$1.25 billion $1.25 billion–$2.5 billion
Group C $1.25 billion–$3 billion $2.5 billion–$6 billion
 
For more in-depth data and insights, download The BDO 600: 2021 Study of CEO and CFO Compensation Practices of 600 Mid-Market Public Companies.
 

2021 Study of Board Compensation Practices of 600 Mid-Market Public Companies

  • Technology and healthcare and life sciences board directors received the highest compensation
  • For the first time, there are industries that have 100% of companies with at least one female board director

The role of boards of directors across industries and sectors has been pivotal in helping companies navigate the economic effects of the pandemic, and directors’ time commitments and workloads have increased dramatically over the past 18 months. Director total compensation increased by 2.3% in fiscal year 2020 over fiscal year 2019, according to the BDO 600: 2021 Study of Board Compensation Practices of 600 Mid-Market Public Companies.

In 2020, total compensation, including board retainers and fees, committee retainers and fees and total equity pay averaged $182,372. Board compensation strongly correlates with company size and average total compensation for board members increased at somewhat similar rates across the size groups:
  • Companies with revenues (or assets, in the case of financial services) of between $100 million­–$500 million paid board members an average of $146,374
  • Companies with revenues of between $500 million and $1.25 billion paid $190,783
  • Companies with revenues of between $1.25 billion and $3 billion an average of $202,637

As in last year’s report, the actual range of pay is significant. Some of the smaller companies pay less than $10,000, typically through a cash stipend, while some of the larger companies offer their directors a package worth more than $400,000, which is largely equity-based (more than 75% of their pay package).

Companies of all sizes are prioritizing equity over cash. Historically, larger companies have provided a higher proportion of equity-based compensation compared to smaller companies. Now, however, the compensation mix is more comparable across all groups. Stock awards are preferred over stock options.
 
Mix of Compensation by Size Category
Size Category Board Retainers & Fees Committee Retainers & Fees Total Equity Pay
Group A 39% 5% 56%
Group B 33% 4% 63%
Group C 36% 4% 60%
 
Equity, comprising such a significant portion of pay, results in more year-over-year variation in board members’ actual/realized compensation based on the performance of companies’ stock.

Board directors in the technology and healthcare and life sciences industries were the highest paid, seeing $239,945 and $238,144 in total compensation, respectively. On the other end of the spectrum, directors in the financial services–banking industry were paid approximately just one-quarter of the highest board director compensation, or $54,513.

While the vast majority of companies include women on their board (97% on average), women continue to represent a small percent of directors overall (23%)—lower than the percent of women on S&P 500 boards (30%).

However, for the first time, there are industries that have 100% of companies with female board directors:  healthcare and life sciences, and real estate.

"Increasing the representation of diverse thought is accretive to a board’s ability to oversee a broad range of evolving business issues. Increasing the number of women on boards of all sizes continues to be a key objective in enhancing board diversity,” said Amy Rojik, Managing Partner - Corporate Governance at BDO. “Recently effective regulation in California and the SEC’s approval of NASDAQ’s rules regarding disclosure of board member composition of under-represented communities and ethnicities are providing further impetus to bringing more diverse thought and experience to bear in the boardroom."
 
  % Female Directors % Companies with Female Directors % Companies with >35% Female Directors
Overall 23% 97% 12%
Energy 19% 94% 7%
Financial services-banking 19% 95% 8%
Financial services-nonbanking 25% 97% 13%
Healthcare and life sciences 24% 100% 14%
Manufacturing 23% 97% 7%
Real estate 25% 100% 14%
Retail 27% 98% 22%
Technology 23% 95% 11%
 
For more in-depth data and insights download The BDO 600: 2021 Study of Board Compensation Practices of 600 Mid-Market Public Companies.

*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 The BDO 600 2021 Compensation Studies

The reports examined the compensation practices of publicly traded companies in the energy, financial services–banking, financial services–nonbanking, healthcare and life sciences, manufacturing, real estate, retail and technology industries. Companies in the six non-financial service industries in our study have annual revenues between $100 million and $3 billion. Companies in the two financial services industries in our study have assets between $100 million and $6 billion. Data sources include data provided by Main Data Group, Inc. and public company data collected from proxies and other sources.
 

About BDO’s Global Employer Services Practice

BDO’s Global Employer Services practice works with boards and business leaders in all corporate functions to address the challenges and opportunities that come with managing a global workforce: attracting and retaining key talent, incentivizing executives and employees, optimizing strategies for business transactions and complying with complex and ever-changing worldwide tax requirements.
 

About BDO

BDO is the brand name for BDO USA, LLP, a U.S. professional services firm providing assurance, tax, and advisory 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 more than 70 offices and over 750 independent alliance firm locations nationwide. As an independent Member Firm of BDO International Limited, BDO serves multinational clients through a global network of more than 91,000 people working out of more than 1,650 offices across 167 countries and territories.

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