As economic conditions stabilize, executive pay is also leveling off as corporate boards adopt performance-based strategies to attract and retain top talent, according to a Nov. 13 report from Gallagher.
CEO pay jumped significantly in 2024, driven by market recovery and aggressive long-term incentive strategies, the report found. However, that growth is now cooling.
“Boards and compensation committees face a complex balancing act,” Chris Crawford, managing director of Gallagher’s executive compensation practice, said in a statement.
“They must attract, retain and motivate executive talent amid fierce competition while managing shareholder expectations, regulatory changes and economic uncertainty,” Crawford said. “The evolving workforce and increasing scrutiny from investors and regulators make it imperative for companies to align pay strategies with organizational goals and culture.”
Executive pay is beginning to look the same everywhere as corporate boards pay CEOs similarly, which could affect company performance, according to a study published in the Journal of Accounting and Economics. Pay transparency can promote accountability but also mimicry across peer companies, researchers said.
In Gallagher’s analysis of executive compensation at 2,864 Russell 3000 companies, median CEO pay climbed 9.7% in 2024, up from a 5.1% increase in 2023. Among S&P 500 companies, CEO pay grew 7.7% in 2024, up from 5.6% in 2023.
In another analysis of the top 350 U.S. companies, average CEO pay increased 6% in 2024 after two years of decline, according to the Economic Policy Institute. The report highlighted the wide disparity between CEO and average worker pay, noting that CEOs have "extraordinary leverage over corporate boards that set their pay.”
Smaller companies, especially those with less than $50 million in revenue, had a 44.7% increase in median CEO compensation after two years of decline, Gallagher said. Increases were driven by aggressive long-term incentive grants, which now account for 82.4% of total CEO compensation at smaller firms, the report found.
With new Securities and Exchange Commission rules around pay-versus-performance disclosure, employers need to prepare for scrutiny and greater pay transparency, Gallagher said. Boards and compensation committees need to focus on aligning pay with performance metrics, ensure consistency in performance measures and provide clear narrative disclosures to maintain investor confidence.
In 2026, Gallagher anticipates more leveling off in executive pay growth and even further shifts toward performance-based strategies. This will require boards to prioritize long-term value creation over short-term financial gains, the report found.
As the executive talent gap widens, employers face operational risks related to retention and retirement readiness, according to a report from NFP, an Aon company focused on benefits and wealth management. To close knowledge and leadership gaps in executive succession, employers need to rethink executive compensation and benefits strategies, the firm said.
