Is CEO Base Pay Dropping?

by Lyle Leritz, Ph.D. 29. June 2012 11:33

The economic recession that began in 2008 forced many companies to cut costs. These cuts included layoffs, pay cuts, and reduced benefits, as well as other cuts. Executive compensation, often relatively unaffected by economic downturns, came under scrutiny. This was particularly the case for publicly traded companies. The salaries of top executives are public information, and there was some public and shareholder outcry that salaries were grossly inflated. As a result, some companies began reducing and eliminating several components of executive compensation packages. Golden parachutes, non-performance bonuses, and short-term bonuses are just a few examples of areas that were affected. But what about base salary? While there may have been some reductions early on, an analysis of more recent data may reveal what the landscape looks like today.

The analysis was conducted by matching salaries for the same Chief Executive Officer (CEO) reported on proxy statements from the last two reported years. A change in position or personnel was grounds for removal of that data. Next, each data pair was grouped by industry using Standard Industrial Classification (SIC) codes. When companies file proxies, they include SIC codes based on their industry. SIC codes are four digits long but can be aggregated at the two- and three-digit level. For example, 4724 is Travel Agencies and 4725 is Tour Operators. However, both fall under 4720 Arrangement of Passenger Transportation. For this analysis, three-digit SIC codes were used to allow large enough data groupings, while at the same time, provide a meaningful level of analysis. Based on this, change in salary was calculated as the percentage change from one year to the next. Finally, average salary change by industry was calculated. Any industry grouping with less than five observations was dropped from the final analysis.

The final analysis includes 204 industries (at the 3-digit level) for 5,756 CEOs. Overall, CEO pay increased, on average, 10% for the most recent reported fiscal year.  Only 10 industries showed a decrease in CEO pay, with the biggest drop being just under 6%, and the remaining dropping 2% or less. CEO pay is certainly not dropping. The remaining 194 industries all saw CEO pay increasing. The top 10 industries are shown below.


CEO by Industry

Salary Change

Accounting Services (8720)


Furniture Manufacturing and Support Services (2590)


Gasoline Stations (5540)


Petroleum Refineries (2910)


Animal Health, Veterinary and Services (0740)


Druggists' Goods Merchant Wholesalers (5120)


Electrical and Wiring Installation Contractors (1730)


Pharmacy, Drug, Health and Beauty Stores (5910)


Electric Distribution Equipment Manufacturing (3610)


Millwork, Veneer and Plywood Manufacturing (2430)


It is worth noting that service industries are not well represented in the list, appearing only one time (Accounting Services, albeit the largest increasing industry). On the other hand, manufacturing industries are over-represented, appearing four times. This is particularly interesting because the service industry has been prosperous over the last two decades, while manufacturing companies have taken a number of losses. Further inspection of salaries within these industries does reveal a situation in which manufacturing salaries were low to begin with (and thus easier to attain higher increases expressed as a percentage). In fact, salaries tended to be higher to begin with for the manufacturing industries.