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Pay Governance LLC is an independent firm that serves as a trusted advisor on executive compensation matters to board and compensation committees. Our work helps to ensure that our clients' executive rewards programs are strongly aligned with performance and supportive of appropriate corporate governance practices. We work with nearly 400 companies annually, are a team of nearly 60 professionals in 13 U.S. locations with affiliates in Europe and Asia with experience in a wide array of industries, company life cycles and special situations.

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Current Issues in Executive Compensation

Pay Governance understands that times remain uncertain. Our domain expertise remains executive compensation consulting. Therefore, each week we will continue to provide you with a short newsletter to keep you abreast of developments in the executive remuneration world.

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Featured Viewpoints

Women on Boards – The U.S. Corporate Journey Towards Gender Diversity


As executive compensation advisors to the boards of many prominent publicly traded companies, we are witnesses to the revolutionary increase of women directors in the board room. Board gender diversity remains a major corporate governance objective globally. The U.S. has achieved substantial progress on gender diversity at many large publicly traded companies. Significant progress has been made as society, investor preferences, and governance have evolved, often through the hard work of groups and leaders focused on the criticality of this issue. Many experts believe that gender diversity is essential to financial success, better decision-making and attractiveness to investors, while benefiting all stakeholders: employees, customers, vendors, and the public. [1]

While boards have made progress on gender diversity, there is more to do to increase both gender and underrepresented minority (URM) representation on boards. As we continue to strive for better board gender diversity, we suggest that the lessons learned on this front can enable broader board diversity including URM representation. We also discuss how current board governance structures may need to be reframed in the effort of advancing broader board diversity.

Women Joining Boards: By the Numbers

To understand the progress of women on boards, we have utilized unique information from the DirectorMoves database that contains information from thousands of companies with market capitalizations of $150 million or greater, which would include all of the Russell 3000 plus many more. These data allow us to develop real-time information, specifically focusing on the number of directors joining and departing boards by gender. The DirectorMoves data show a significant increase in women board members over the past five years with over 2,700 women joining boards (net of departures); 1,300 of whom joined in the last two years. In stark contrast, over 1,900 men (net of new men joining) have departed from board service during the same period (Figure 1). The definition of “net amount” is calculated as [net board members = total board members joining – total board members departing]. For example, if a total of 10 women joined boards in a period and 7 departed in the same period, the net increase is 3 joining. The same methodology was used to calculate the net for men.

In a 2021 annualized forecast, over 1,400 men will have been recruited to join boards, while over 1,800 men will have departed. By contrast, over 1,200 women directors will have been recruited to join boards, and 460 will have departed (Figure 2). While the total projected number of men joining boards remains slightly higher than women in 2021, the forecasted departure levels for men are substantially higher than that of women (1,857 men versus 460 women).

The DirectorMoves data indicate a compound annual growth rate of women on boards of approximately 25% over the past four years; however, the growth of women on boards has decelerated in the past two years ( Figure 3).

In contrast, despite the fact that we estimate that there are slightly more men than women still being recruited to boards, the number of men on boards has declined on average by almost 380 per year over the past five years ( Figure 4).

Evolution of Board Gender Composition

Currently, 30% of the S&P 500 independent board directors are women. This shows progress when compared to 2015, when women represented approximately 18% of board composition. In 2015, there was an average of 1–2 women independent board members sitting on a board of 9–11 board members. Today, the average number of women directors is 3.3,F [] within an average board size of 10.8.F[] Further, nearly 400 women were recruited in the past two years to S&P 500 boards. Over the past five years, we have seen a 78% increase in the number of women directors of S&P 500 companies, with the percent change increasing to over 200% in the ten years from 2011–2021 ( Figure 5). These growth rates are directionally consistent with the more expansive universe of the DirectorMoves data, which capture a broader sample of companies of varying sizes and whose progress has advanced (as outlined in Figure 3 above), but not at the pace of the S&P 500.

While 30% was the initial target level for women board representation in 2015, it should be considered a milestone in the journey with expectations for continued progress. Certain S&P 500 organizations are leading the way with 50% or greater women board diversity in 2021. Of note, within the ten S&P 500 companies that have 50% or more women on their board, six also have women Chief Executive Officers and/or women Board Chairs, supporting recent observations that companies with women leaders tend to have more diverse board composition. [4]

This progress has been driven within the U.S. by a number of factors including legislation, regulatory efforts, and shareholder focus, as well as the hard work of groups and leaders focused on the criticality of diversity issues. For example, in 2018 California passed Senate Bill 826 into law which requires California headquartered, publicly traded companies to have at least one woman on the board. Additional states that have enacted board diversity-related measures include: Colorado, Maryland, Illinois, and New York.[5] In August 2021, the SEC approved NASDAQ’s Board Diversity Rule which requires companies listed on their U.S. stock exchange to publicly disclose board-level diversity statistics annually using a standardized template, or explain why they do not have at least two diverse directors. [6] Further, Institutional Shareholder Services (“ISS”) has just closed the comment period for the ISS Proposed Benchmark Policy Changes for 2022, which include proposed changes to ISS’ gender, racial and ethnic policies in multiple markets. [7] These requirements will help organizations both focus on their diversity, inclusion and belonging priorities while providing shareholders and employees with increased transparency regarding board-level progress towards broader diversity.

Reframing Board Governance Norms to Accelerate Progress

The progress towards a balance of gender diversity on boards is significant. As we identify factors that may be posing challenges to diversity on boards generally, it is important to evaluate whether current board governance practices should be revised to keep pace with cultural and social changes in the broader environment. To continue diversity progress, companies should reevaluate the skills and capabilities they need from their board members as well as facilitate that evolution of skills to match strategy and culture (e.g., through board refreshment, changes in board recruiting strategy, etc.). We see this new mindset emerging as companies continue to focus on board succession planning with the same rigor as management succession planning.


The increased representation of women in the boardroom over the past five years is promising. Gender diversity has gained both momentum and visibility as society, investor preferences, and governance have evolved, often through the hard work of groups and leaders focused on the criticality of this issue. Further, many organizations have already begun the execution of their diversity, equity, inclusion, and belonging priorities which means that we can expect to see more change in board composition in the coming years. With the increasing requirements for consistent disclosure across U.S. publicly traded companies, and ongoing investor pressure, we expect closer attention to increased URM diversity as well. Boards must ensure that board members continue to have the skills and capabilities to best support their business strategies and meet stakeholder expectations. This will help spur progress in creating boards composed of a variety of different people and perspectives — creating a richer dialogue, enhanced decision-making, and improved company performance.

General questions about this Viewpoint can be directed to Olivia Wakefield at or Ira T. Kay at

[1] Sundiatu Dixon-Fyle et al. Diversity Wins: How Inclusion Matters. McKinsey & Company. May 19, 2020.
[2] Jeff Green. Women’s Gains Push Majority of S&P 500 Boards Into the 30% Club. Bloomberg. August 16, 2021.
[3] 2021 U.S. SpencerStuart Board Index.
[4] When Women Lead: Does Boardroom Composition Change When Women Hold Leadership Positions? 50/50 Women on Boards. 2021.
[5] Michael Hatcher and Weldon Latham. States are Leading the Charge to Corporate Boards: Diversify!, May 12, 2020.
[6] Nasdaq’s Board Diversity Rule, What Nasdaq-Listed Companies Should Know. October 1, 2021.
[7] Proposed ISS Benchmark Policy Changes for 2022. 2021.

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Featured Viewpoint

SEC Reopens Comment Period on Clawback Rules


Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), enacted in 2010, resulted in the addition of Section 10D to the Securities Exchange Act of 1934. Among other items, Section 10D requires the Securities and Exchange Commission (SEC) to adopt rules directing the national securities exchanges and associations to prohibit the listing of any security that is not in compliance with Section 10D’s numerous provisions and requirements. One of the major provisions of Section 10D is a requirement for a filing company to disclose its policy on the recovery of incentive-based compensation that is received in excess of what would have been received based on the restated financial statements.

In July 2015, the SEC proposed its new rules to Dodd-Frank including the requirement for listed companies to adopt and comply with a compensation recovery policy.[i] In response to the SEC proposal, many companies have developed compensation recovery policies — frequently referred to as clawback policies. However, the SEC did not finalize its 2015 proposal after the comment period. On October 14, 2021, the SEC reopened a 30-day comment period requesting feedback on the proposed rules of the 2015 initial proposal as well as the SEC’s latest release regarding compensation clawbacks. [ii] The new SEC release, which is 19 pages in length, can be viewed on the SEC’s website. [iii]

Summary of the Proposed Clawback Provisions

The proposed rules, including both the initial rules and the new rules and amendments, require that all listed companies adopt a compensation clawback policy in which the recovery of excess compensation is required in the event of a material misstatement of the company’s financial statements. Key provisions of the proposed rules include:

  • The rules apply to current and former executive officers who received incentive-based compensation during the three fiscal years preceding the date on which the company is required to prepare an accounting restatement to correct a material error.
  • The recovery policy must apply on a “no fault” basis without regard to an executive officer’s responsibility for the misstated financial statements or whether any misconduct occurred.
  • The amount of incentive-based compensation to be recovered is the amount received by an executive officer that exceeds the amount they would have received had the incentive-based compensation been determined based on the restated financial statements. All recoveries are to be calculated on a pre-tax basis.
  • An exception to the mandatory clawback policy is provided to the extent it would be impracticable to do so — such as a situation where the direct expense of enforcing the recovery would exceed the amount to be recovered — or for foreign private issuers, where recovery would violate home country law. However, a board that waives recovery under this limited discretion provision must subsequently disclose its rationale (see further disclosure implications below).
  • Companies are prohibited from indemnifying current and former executive officers against the loss of recoverable incentive-based compensation.
  • “Incentive-based compensation” is defined to include any compensation that is granted, earned, or vested based wholly or in part upon the attainment of a financial reporting measure, any measure derived wholly or in part from such financial information, and stock price and total shareholder return. For incentive-based compensation based on stock price or total shareholder return, companies would be permitted to use a reasonable estimate of the effect of the restatement on the applicable measure to determine the amount to be recovered. The rules do not apply to time-vested stock options, time-vested restricted stock / restricted stock units, discretionary bonuses, or salaries.
  • The proposed rules also require the filing of the substance of the clawback policy as an exhibit to a company’s annual report, proxy, or other annual disclosure. If the company completed a restatement that required recovery, disclosure of the aggregated dollar amount of the excess incentive compensation attributed to the restatement must be reported as well.

Key New Provisions Requesting Comment

Pay Governance will continue to monitor the progress of the Clawback proposal as it works its way through the regulatory process.

General questions about this Viewpoint can be directed to John Ellerman at or Mike Kesner at


[i] “Listing Standards for Recovery of Erroneously Awarded Compensation.” U.S. Securities and Exchange Commission. July 14, 2015.
[ii] Gary Gensler. “Statement on Rules Regarding Clawbacks of Erroneously Awarded Compensation.” U.S. Securities and Exchange Commission. October 14, 2021.
[iii] “Reopening of Comment Period for Listing Standards for Recovery of Erroneously Awarded Compensation.” U.S. Securities and Exchange Commission.
October 14, 2021.

Featured Viewpoint

S&P 500 CEO Compensation Increase Trends

Introduction and Summary

CEO pay continues to be discussed extensively in the media, in the boardroom, and among investors and proxy advisors. CEO median total direct compensation (TDC; base salary + actual bonus paid + grant value of long-term incentives [LTI]) increased at a moderate pace in the first part of the last decade — in the 2% to 6% range for 2011-2016. CEO pay accelerated with an 11% increase in 2017, likely reflecting sustained robust financial and total shareholder return (TSR) performance, before returning to 3% in 2018 and 1% in 2019, more in line with historical rates. Our CEO pay analysis is focused on historical, actual TDC, which reflects actual bonuses based on actual performance; this is different from target TDC or target pay opportunity, which uses target bonus and is typically set at the beginning of the year.

As proxies are filed in early 2021, we expect that 2020 overall CEO actual TDC will decrease, potentially by 3-4%, due to the COVID-19 pandemic and lower bonus payouts – there will be some variation with companies in strong performing industries likely seeing increases in compensation; 2020 actual pay will be balanced by steady base salaries and LTI grants, as most companies had strong financial performance at the time awards were granted (typically Q1). The last time CEO compensation decreased was during the 2008 to 2009 “Great Recession,” where the financial crisis triggered a meaningful contraction in the economy resulting in poor company performance and lower CEO pay. With regard to 2021 CEO target pay, however, we are expecting increases to be in the low single digits primarily due to some companies making “supplemental LTI grants” to partially offset for lost value for performance share plans that were damaged and mostly worthless due to the financial impact of the pandemic. Executives in industries with favorable economic conditions and higher growth (e.g., technology and biotechnology) will likely see more significant pay increases, while those in hard-hit industries may see flat or continued pay declines.

Historical Trends in CEO Pay and LTI Vehicles

CEO pay rebounded 31% in 2010 after -9% and -13% decreases during the financial crisis of 2008 and 2009, respectively. Since then, year-over-year pay increases have been moderate — in the 2% to 6% range — except for the 11% increase in 2017 (Figure 1).

Over the last 10 years, LTI vehicle use has shifted away from stock options, mostly in favor of performance-based plans. From 2009 to 2019, performance plan and restricted stock prevalence increased, and stock option prevalence decreased (Figure 2). The rise in performance-based plans can largely be attributed to the introduction of Say on Pay and the preferences of proxy advisors and some shareholders toward LTI systems that they consider to be “performance-based” (note: the proxy advisors do not consider stock options to be performance-based). This being said, we would not be surprised to see stability in the use of stock options — or even an uptick in usage in the future given the COVID-19 pandemic. Many companies made stock option grants during the depth of the Great Recession in early 2009: this is likely due to the difficulty in setting multi-year goals at the time and the fact that stock options provided a direct linkage to share price improvements and an opportunity for significant upside leverage.

Trends in CEO Pay versus S&P 500 Index Performance

In recent years, CEO pay increases have been supported by strong TSR. In fact, pay increases over the last 9 years have trailed TSR performance by ~9% when examining the compound annual growth rates (CAGR) of compensation and shareholder return: TSR CAGR was 16% while CEO pay grew at 7%. The year 2019 is notable in that during a period of excellent TSR performance (31%), CEO pay increased by only 1% (Figure 1).

There is a positive correlation between share price performance and CEO pay. In a positive stock price environment, Compensation Committees are often more supportive of CEO pay increases, typically delivered via larger LTI grants, while CEO base salaries increase modestly or periodically (i.e., less frequently than an annual basis) and comprise a small portion of the executive pay package. Annual actual bonuses, though not as significant as the LTI portion of total compensation, can have a meaningful impact on whether compensation grows year over year. When a company is having a good year and is exceeding budget goals as well as investor and analyst expectations, the CEO bonus often pays above target and increases year over year (often, the share price also increases as company performance is strong). That said, there will be some years where a CEO’s bonus pays above target when the company exceeded its budgeted goals, while the share price declines due to stock market volatility or correction and sector rotation. The opposite can also happen: goals are not met, resulting in lower bonuses, while the stock market goes up — this is what happened to many companies in 2020 in part due to the COVID-19 pandemic.

CEO Pay Projections

1) We expect 2020 overall CEO actual TDC to decline in the low single digits due the COVID-19 pandemic and weaker financial results that impacted bonus payout decisions; there will be some variation with strong performing industries likely seeing increases in compensation .

a) The Aggregate S&P 500 Index year-over-year revenue and operating income for 2020 are currently forecasted to decrease by 5% and 18%, respectively (S&P Capital IQ).

b) We expect median CEO target pay increases in early 2021 will be in the low single digits as a result of LTI compensation increases primarily due to some companies making “supplemental LTI grants” to partially offset for lost value for performance share plans.

2) In certain high-growth industries (e.g., technology and biotechnology) and high-performing companies, executives may experience increases in total compensation, while executives in slow-growth industries or heavily impacted companies might see no increases or declines.

3) Going into Q1 2021, companies will want to be careful and strike a balance of having competitive executive pay with the public, investor, and proxy advisor expectation that companies exercise restraint in light of the pandemic’s continued disruption.

The above projections assume successful global rollout and broad usage of the COVID-19 vaccine; they do not account for additional major market shocks (e.g., geopolitical uncertainty, dramatic changes in the economic or political environment, significant and unanticipated modifications to the Federal Reserve’s interest low rate policies, or significant drops in the overall stock market).


The CEO pay analysis consists of S&P 500 companies led by CEOs with a ≥3-year tenure. Pay data includes base salaries and bonuses paid for each year as well as the reported grant date fair value of LTI awards. Our analysis of consistent incumbent CEOs was designed to highlight true changes in CEO compensation (as opposed to changes driven by new hires or internal promotions, which typically involve ramped-up pay over a period of 1 to 3 years).

Note on Realizable Pay

Our methodology used year-over-year CEO actual pay and was based on the accounting value of LTI as reported in proxy summary compensation tables. These amounts are more akin to pay opportunity than realizable pay, which includes in-the-money value of stock options, ending period value of restricted stock, and estimated value of performance shares. Our past research has strongly correlated realizable pay and TSR performance. While we have shown there is a positive correlation between CEO annual pay increases and TSR performance, we are confident the correlation is not as significant as that between realizable pay and TSR increases.

General questions about this Viewpoint can be directed to Aubrey Bout ( or Brian Wilby (

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