Pay varies widely by industry.
Industry is a key driver of compensation. Pay differentials for salary and TCC in the manufacturing and professional services industries are highlighted in figure 1. On a salary basis, professional services CEOs earn 109% (a 9% premium) compared to all industry CEOs, while manufacturing CEOs earn 97% (a 3% discount) compared to all industry peers. The trend is similar for TCC, with professional services CEOs receiving 110% compared to all industry CEOs (a 10% premium), and manufacturing CEOs, earning 97% (a 3% discount). We have controlled for size by focusing on companies with revenues between $100 million and $500 million.
FIGURE 1: Differential of Median CEO Pay by Industry Compared to Overall Private Company CEO Pay
CEOs in large metro locations tend to be paid more.
CEOs in large metro locations generally earn more than their counterparts outside of large metro locations. The premium for large metro area CEOs is most pronounced in the $100 million to $500 million revenue range; those CEOs earn 21% more than their counterparts in smaller metro areas.
FIGURE 2: Differential of Median CEO Pay in Large Metro Locations Compared to Other Locations
Based on the top 11 metropolitan statistical areas reported in the survey.1
Family-owned companies favor salary, while private-equity-backed companies favor LTIs.
Among companies with $100 million to $500 million in revenue, pay mix for CEOs varies depending on the company ownership type. For example, private-equity-backed companies weigh pay towards LTIs more heavily than any other ownership structure, aligning with their investment ethos. Family-owned companies weigh salary more heavily.
FIGURE 3: CEO Pay Mix by Ownership Type
Top executive pay as a percentage of CEO pay peaks at midsized companies.
Total cash compensation for non-CEO executives as a proportion of CEO TCC generally peaks at midsized companies ($50 million to $100 million in revenue), then recedes as company revenues scale. This is likely reflective of the growth of the CEO’s role into more of a strategic than a tactical role, and the presence of a more competitive market for senior leaders with the specific skills and experiences necessary to continue to scale organizations.
- For CFOs, TCC is 46%-59% of CEO TCC; compensation for CFOs is at its highest proportion of CEOs’ TCC at companies with revenues of $50 million to $100 million.
- For COOs, TCC is 35%-49% of CEO TCC; compensation for COOs is at its highest proportion of CEOs’ TCC at companies with revenues of $50 million to $100 million.
- For top sales/marketing executives, TCC is 29%-46% of CEO TCC; compensation is at its highest proportion of CEOs’ TCC at companies with revenues of $50 million to $100 million. These roles present the most variation in compensation compared to CEOs, likely due to differences in the scope of the role across companies.
FIGURE 4: Executive TCC as Percentage of CEO TCC
For family-owned companies, pay mix varies based on the number of generations.
Among family-owned companies, pay mix for CEOs varies depending on the number of generations of ownership. CEO variable compensation increased with each successive generation of ownership. Median CEO company ownership also decreased with each successive generation of ownership.
FIGURE 5: CEO Pay Mix by Ownership Generation
Using Survey Data to Inform Compensation Decisions
The key drivers of CEO compensation levels and mix are company size, industry, location, and ownership type. Considering these characteristics provides guidance for determining the competitive range of CEO compensation. Other factors not captured in the survey that should be considered include company performance and strategy.
When setting executive compensation, it is advisable to consider all these factors and consult with a qualified advisor to help companies establish a well-rounded and competitive compensation strategy.
BDO helps companies design compensation strategies to meet business goals while providing advice to evaluate the tax implications of the programs. For more information on how BDO can help, visit our Global Employer Service page.