The number of CEOs experiencing a reduction in total pay doubled in 2022 compared to 2021, according to an analysis by WTW. The analysis revealed that the percentage of CEOs receiving a pay cut increased from 21% in 2021 to 42% in 2022.

The chief executive officers at major US corporations saw a meager 2.7% salary increase in 2022, significantly lower than the 18.3% median increase in 2021, according to a new analysis of proxy disclosures by WTW.

The analysis also found that annual bonuses declined by 2.5% in 2022, while the value of earned long-term incentives rose by 10%. CEO salaries increased by 3.1% in 2022, following a year of no change in average CEO salaries.

Total pay, as disclosed in the Summary Compensation Table (SCT) of company proxy statements, encompasses various components such as base salary, annual and long-term cash bonuses, grant-date value of long-term incentives, perquisites, deferred compensation earnings, and changes in executive pensions.

According to Don Delves, North America leader of Executive Compensation at WTW, CEO pay stabilised in the past year and is reverting to pre-pandemic levels. Despite the stock market performance and ongoing economic uncertainties, the decline in annual and long-term incentives indicates the effectiveness of the pay-for-performance model across most companies.

The analysis further highlighted that over 56% of S&P 1500 companies incorporated an ESG (Environmental, Social, and Governance) performance measure in their annual incentive plans in 2022, showing an increase from 49% in 2021. However, the utilization of ESG performance measures in long-term incentive plans remained relatively low at 8% in 2022, compared to 7% in 2021. Among the subset of 227 S&P 500 companies examined, there was a growing trend of linking executive incentive awards to ESG measures. Twenty-one companies introduced an ESG measure in their annual incentive plans, while 47 companies expanded their use of ESG metrics. Additionally, nine companies incorporated an ESG metric into their long-term incentive plans, and two companies expanded the utilization of ESG metrics in their long-term incentive plans.

“We are seeing continued interest by boards in linking executive pay to ESG priorities, particularly those priorities they feel may be linked to sustainable value creation,” said Kenneth Kuk, senior director, Work & Rewards, WTW. “Many boards of directors see executive incentives as an effective way to hold CEOs and other corporate leaders accountable to meeting ESG goals they believe are most critical to business strategy, such as carbon emission reduction and diverse representation for management and the workforce.”