How Executive Compensation Works
Modern CEO pay is more complex than a salary. Understanding the six standard components of executive compensation, as defined by U.S. Securities and Exchange Commission Item 402 of Regulation S-K and disclosed annually in DEF 14A proxy filings since 1993, helps you interpret the numbers on PlainCEOPay. According to the SEC, more than 7,000 U.S. public-company registrants must report named-executive officer pay each year, covering salary, cash bonus, stock awards, option awards, non-equity incentive plan compensation, and all other compensation; see our methodology for the narrower field set currently parsed by PlainCEOPay.
The Six Components of CEO Total Compensation
The SEC requires public companies to report CEO compensation in a standardized "Summary Compensation Table" in their annual proxy statement. The total compensation figure includes six main components:
1. Base Salary
The fixed cash amount a CEO receives annually, regardless of company performance. For many CEOs at large companies, base salary is actually a relatively small portion of total compensation, often 5–15%. Boards intentionally keep base salaries modest to tie the majority of pay to performance.
2. Annual Cash Bonus
A variable cash payment tied to pre-set performance goals, typically measured annually. Common metrics include revenue growth, EBITDA, earnings per share, and individual objectives. Bonuses can range from zero (if targets are missed) to multiple times salary (if targets are far exceeded).
3. Stock Awards
Grants of company stock or restricted stock units (RSUs) that vest over time, typically 3–5 years. Stock awards reported in the Summary Compensation Table reflect the grant-date fair value of awards made during the year, not what the CEO will ultimately receive (which depends on stock price when they vest). Stock awards often represent 40–60% of total CEO compensation at large companies.
4. Option Awards
Grants of stock options, the right to buy company shares at a fixed price (the grant price) for a set period. Like stock awards, these are valued at grant date using models like Black-Scholes. Options were once the dominant form of equity compensation but have been largely replaced by RSUs at most large companies.
5. Non-Equity Incentive Plan Compensation
Cash bonuses paid under a formal incentive plan, where the payout is based on meeting quantitative goals established at the start of the year. This is different from the "Bonus" column, which captures discretionary bonuses. Both are cash but treated differently in disclosure rules.
6. All Other Compensation
A catch-all category including perquisites (perks) such as personal use of company aircraft, security services, financial planning services, club memberships, retirement plan contributions, and other benefits. While often a small absolute dollar amount, these perks can attract scrutiny.
Why Stock Awards Dominate Total Compensation
For S&P 500 CEOs, equity (stock awards + options) typically represents 60–75% of total reported compensation. Boards use equity for three reasons:
- Alignment: When CEO wealth tracks stock price, their interests align with shareholders.
- Retention: Multi-year vesting schedules create "golden handcuffs."
- Tax efficiency: Capital gains rates can be more favorable than ordinary income taxes.
Why CEO Pay Looks So High in "Bad" Years
Stock awards are reported at their grant-date fair value, not their ultimate realized value. A CEO can receive a large stock award grant in a year when the company is struggling, which will show up as high total compensation in the proxy table, even if those awards ultimately lose value as the stock declines.
Conversely, some award valuations are much higher than the grant-date value suggests, if the stock price has risen substantially by the time shares vest.
Who Sets CEO Pay?
The compensation committee of the board of directors determines executive pay, typically with the help of an outside compensation consultant. They benchmark against "peer group" companies and target CEO pay at a specific percentile of the peer group (often the 50th or 75th percentile).
Shareholders get an advisory vote on executive compensation ("say-on-pay") at least every three years, though this vote is non-binding. Companies where shareholders vote against pay packages typically face scrutiny from institutional investors and proxy advisors like ISS and Glass Lewis.
Reading the Summary Compensation Table
When you look at a company profile on PlainCEOPay, the compensation breakdown bar shows the relative size of each component. Use this to understand:
- Is this company equity-heavy (tech-style) or cash-heavy (traditional industries)?
- What share of CEO pay is truly "at risk" (bonus + equity) vs. guaranteed (salary)?
- Are there outlier perks or unusual compensation items?
FAQ
What is a reasonable CEO salary?
Base CEO salary varies enormously by company size and industry. S&P 500 CEO base salaries typically range from $750,000 to $2.5 million. However, base salary is usually a small fraction of total compensation - what matters more is the full package including equity.
What is "realized pay" vs. "reported pay"?
Reported pay (what appears in the Summary Compensation Table and on PlainCEOPay) reflects grant-date fair values of stock and option awards. Realized pay is what the CEO actually received in cash or sold stock. These can be very different, a stock grant made in a bull market year could be worth far more when it vests, while a grant made before a stock decline might be nearly worthless.
Every figure on PlainCEOPay is rendered directly from SEC EDGAR executive compensation filings, no number is typed in by an editor. This page draws directly on SEC EDGAR executive compensation data, no figure is typed in by an editor. See our editorial standards & corrections policy, the methodology behind these numbers, or report a data error.