Surprising Trends Emerging in New CEO Hiring and Compensation
Thirty-one percent of Fortune 500 companies
Internal vs. External CEOs Hired
hired a new chief executive at least once
between 2010 and 2012. Historically, companies
have overwhelmingly chosen to promote from
2012
67%
33%
within, but over the last few years, this appears
to be changing. More and more top companies
2011
77%
23%
are scouting for top executive talent outside their
own team.
Based on their unique needs and strategic
interests, companies looking to fill the Chief
2010
80%
0%
20%
20%
40%
60%
Internal
External
80%
100%
Executive position may choose to promote an
officer from within or look for potential leaders outside the company. Each choice comes with its own benefits
and perils, but the decision will certainly affect the way the new CEO is compensated, especially over the early
years of the officer’s tenure in the position. Choosing and adroitly compensating the right new leader reassures
employees and stockholders of the firm’s future prosperity and inspires confidence in the Board’s guidance. On
the other hand, consequences for making a poor decision can be disastrous. A wrong turn during a CEO
transition may create an image of weak leadership and unrest over turnover and golden parachute payouts,
steering the company into further shareholder distrust and a lack of confidence in the future of the organization.
This study by Main Data Group highlights emerging trends in hiring and compensation practices among Fortune
500 companies with regard to new CEOs.
Research 9.13.1 www.maindatagroup.com
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CEO Sourcing
In total, the CEO role changed at least once at 31% of Fortune 500 companies between 2010 and 2012. The pace
of CEO turnover was relatively consistent over this period, with roughly 9% of Fortune 500 companies changing
leadership in 2010, and 10% doing so in 2012. For each year in the study, the number of new CEOs promoted
from within far exceeded the number of officers hired for the position from outside.
Despite this, things appear to be moving in a new direction, with more and more top talent recruited from
outside the firm each year. The following chart illustrates the rapid growth in prevalence of new CEOs hired
externally in the Fortune 500, from 20% to 33% over just three years.
Cash Compensation
Reported salaries and performance cash awards to promoted and external first-year CEOs will differ widely by
nature. Promoted officers are often compensated for part of the given fiscal at a lower salary and bonus target
level, only to see their targets raised in connection with their assumption of CEO responsibilities. By contrast,
when a new CEO is hired from outside, their reported salary and bonus target often reflect pro-rata amounts
earned for the portion of the year the officer served as CEO. Because of this lack of consistency from case to
case, it is difficult to draw direct comparisons between cash compensation targets for externally hired and
promoted first-year CEOs. However, it is still valuable to study cash compensation for new CEOs, allowing
observation of longer-term trends in pay practices over the last few years. The chart below presents cash
compensation targets for new CEOs in the Fortune 500 since 2010.
Average Target Cash Compensation for New CEOs
External
$509
2012
$981
Internal
$946
External
$532
$1,286
2011
$779
Internal
$836
External
$602
$1,417
2010
$908
Internal
$877
$0
$500
Research 9.13.1 www.maindatagroup.com
$1,418
$1,000
Salary
Target NEIP
$1,500
$2,000
$2,500
(thousands)
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As expected, salaries and target cash incentives for promoted CEOs were higher than those of outside hires for
each year in the study. Although there is a high degree of variation between the internal and external CEO
groups, there has been a high degree of consistency year-over-year. Both groups of CEOs receive cash
compensation targets weighted heavily toward performance awards, and in similar amounts each year.
Total Compensation Pay Mix
Examining target total direct compensation provides a range of insights into developing trends in new CEO pay.
Since 2010, total compensation to both CEO groups has increased significantly despite relative stability in cash
compensation, with target compensation for internal hires up 18%, and targets for external hires climbing nearly
71% over the period. The chart below breaks down average target total compensation for new Fortune 500
CEOs over the last three years.
Average Target Total Compensation for New CEOs
$509
$981
$1,658
$3,789
$1,441
2012
External
Internal
$532
$1,286
$779
$513
$2,324
$998
$1,733
$2,499
$1,075
$1,397
2011
External
$946
Internal
$836
External
$908
$516
$1,798
$1,609
$1,052
$1,166
$1,271
2010
$602
$1,417
Internal
$877
$0
$1,418
$1,000
$2,000
Salary
Performance Options/SARs
$1,567
$3,000
$704
$4,000
Target NEIP
Time-Vest Stock/Units
$1,649
$5,000
$6,000
$7,000
$8,000
$9,000
(thousands)
Performance Stock/Units
Time-Vest Options/SARs
These large increases in target pay have happened even as cash compensation remained relatively stable,
leaving equity awards to make up an overwhelming majority of the growth. Performance equity targets for
internal hires were consistently higher than those of outside hires, but targets for outside hires have more than
tripled since 2010, alongside more modest increases in performance equity targets to promoted CEOs. As one
might expect, time-vesting equity awards to outside CEOs are far larger on average than the same award types
to promoted CEOs, likely because an officer promoted from within usually holds a significant share of the
company already, and companies hope to provide strong retention awards to new CEOs.
Research 9.13.1 www.maindatagroup.com
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Hiring and Compensating a New CEO
Watching the way leading companies navigate the complex and extremely important process of hiring and
compensating a new chief executive offers insights into both new and proven practices in first-year CEO pay.
While new CEO pay is only one element of a much longer-term retention strategy, there is a lot of value to be
gleaned from a better understanding of those critical first few months under a new chief executive.
The information presented in this study represents a small but integral part of a richer understanding of
compensation strategies and practices, produced using the Snapshot Data™ tool from Main Data Group.
Snapshot Data™ makes powerful compensation analytics possible on a granular, company-specific scale, as well
as a broad peer-group or industry level, allowing users to create customizable peer groups and learn about
trends and best practices of all kinds emerging in their own field.
About the Research
For this study, Main Data Group compiled data about newly hired or promoted CEOs in the Fortune 500 since fiscal 2010.
The objective was to compare the number and target pay mix of internally-promoted CEOs against that of externally-hired
CEOs over the last few fiscal years. The study universe includes information collected by Main Data Group for each officer at
a Fortune 500 company that became CEO during or after fiscal year 2010. An individual hired by a company during any year
prior to the year they first became CEO is considered an internal promotion to the position. An individual who became CEO
at a company during their first year at the company is considered an external hire for the position.
About Main Data Group
Main Data Group is a provider of high-resolution executive compensation data. We have a robust cloud-based platform
which streamlines peer comparison work for compensation professionals. Our breadth-of-data and ease-of-use go above
and beyond what is offered by any other product currently available.
Information and analyses in this email were developed using the Main Data Group Snapshot Data™ executive compensation
benchmarking tool. Our analyses are based on information disclosed in SEC filings. To learn more about Snapshot Data™ or
to request a free two-week trial, e-mail us at [email protected] or call us at (408) 776-1000 x106.
© Main Data Group, Inc. 2013. (408) 776 – 1000. www.maindatagroup.com
Research 9.13.1 www.maindatagroup.com
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