2015 CEO Pay Strategies

Equilar is the leading provider of executive compensation and corporate governance data for corporations, nonprofits, consulting firms, institutional investors, and the media. As the trusted data provider to 70% of the Fortune 500, Equilar helps companies accurately benchmark and track executive and board compensation, Say on Pay results, and compensation practices.

Equilar’s award-winning Equilar Insight product suite is the gold standard for benchmarking and tracking executive compensation, board compensation, equity grants, and award policies. With an extensive database and more than a decade’s worth of data, the Equilar Insight platform allows clients to accurately measure executive and board pay practices. With Equilar’s Governance Center, companies can better prepare by analyzing historical voting results and modeling pay for performance analyses to ensure successful Say on Pay outcomes.

Equilar Insight’s Governance Center provides a comprehensive set of tools including:

• Institutional Shareholder Services (ISS) Simulator• Glass Lewis Modeler• Pay for Performance Analytics Solution

Equilar’s Research Services eliminates the complexity of conducting benchmarking and governance research, frees up internal resources for our clients, and delivers the information needed for strategic decision making. Whether you need benchmarking data, pay for performance analytics, employment agreement trends, or anything in between, we have the expertise to help.

About Equilar

Featured In

2015 CEO Pay Strategies | 2

Contents

2015 CEO Pay Strategies | 3

Introduction 4Executive Summary / Methodology 4

Key Findings 4

Total Compensation 5S&P 1500 Total Compensation 6

S&P 500 Total Compensation 6

S&P 1500 Total Compensation by Sector 6

Pay Components 7S&P 1500 Median Pay Component Values by Year 8

S&P 500 Median Pay Component Values by Year 8

S&P 1500 Average Pay Mix (Cash vs. Equity) 9

S&P 1500 Average Pay Mix 10

S&P 1500 Prevalence of Cash Bonus Payouts 11

S&P 1500 Prevalence of Cash Bonus Payouts by Sector 12

Performance Equity and Equity Mix 13S&P 1500 Equity Vehicles by Grant Prevalence 14

S&P 500 Equity Vehicles by Grant Prevalence 14

S&P 1500 Equity Vehicles by Grant Prevalence Sector Breakdown 15

S&P 1500 Equity Mix 16

S&P 500 Equity Mix 16

Executive Summary The landscape of executive compensation continues to be shaped by new SEC regulations as well as the attentions of both institutional investors and proxy advisory firms. Despite market performance regularly breaking records in fiscal 2014, CEO compensation was still subject to the aforementioned pressures to change. This report seeks to elucidate and encapsulate these changes to the way America’s top executives are compensated.

Methodology

The CEOs included in this analysis include all who served in such a position at the end of their company’s applicable fiscal year, and for the entire preceding year. Previous versions of this report have excluded CEOs not in place for at least two full years and included only those years in the analysis. The new methodology has the benefit of more accurately reflecting the current makeup of America’s CEO population and allowing comparison across any number of years. The period chosen for most graphs and statistics is five years, encapsulating the developments taking place since the financial crisis reshaped the American economy and once again brought increased national attention to compensation-related issues. The conglomerates sector was excluded from graphs displaying sector information due to the small sample of companies. However, those companies and their CEOs were included in all index-level statistics.

Although the graphics provided herein display a wide range of statistical information pertaining to CEO compensation, they are only a small sampling of available information.

IntroductionKEY FINDINGS

• Compensation of CEOs has continued to grow. Median compensation in the S&P 500 was $10.3 million (up 0.9% year over year) and median compensation in the S&P 1500 was $5.3 million.

• Performance equity has remained an important part of pay. 83.2% and 82.2% of S&P 500 and S&P 1500 CEOs, respectively, received performance equity awards.

• Options have given up more ground. The median S&P 500 CEO saw only 15.4% of his or her total compensation value in the form of options. Less than half of S&P 1500 CEOs received options at all.

2

3

1

2015 CEO Pay Strategies | 4

Total Compensation

Total Compensation

In a booming market, companies continued to elevate their

benchmarks as they sought better performances from both their executives and their own respective businesses. As a result, CEO compensation continued to rise across all of the S&P 1500’s indices.

With the financial crisis no longer at the forefront of the economy’s collective mind, both CEOs and corporations alike profited. Median pay in the S&P 1500 rose since 2010, from $4.0 million to $5.3 million.

2

4

6

8

10

6

9

12

15

2010 2011 2012 2013 2014

.

.

.13 1 .

.

.13 0 .

.

.12 9

.

.

.14 4 .

.

.14 5

.

.

.5 9 .

.

.6 3 .

.

.6 4

.

.

.7 2 .

.

.7 3

.

.8 6 .8 9

.

.10 6

.

.11 0 .

.10 8

.

.11 9 .

.12 2

.10 2.9 2

.10 3

75th Percentile Average Median 25th Percentile

0 3 6 9 12 15

Healthcare 3.5MM 6.3MM

4.0MM 2.3MM 4.1MM

3.0MM 3.4MM 3.3MM

3.3MM 2.0MM 3.5MM

3.7MM 1.7MM 3.0MM

3.1MM 1.7MM 3.2MM

2.4MM 1.9MM 3.5MM

2.4MM 2.8MM

Basic Materials

Consumer Goods

Utilities

Industrial Goods

Services

Financial

Technology 2.6MM

75th PercentileMedian25th Percentile

3.7MM

S&P 1500 Total Compensation 1

S&P 500 Total Compensation 2

S&P 1500 Total Compensation by Sector 3

MIL

LIO

NS

MIL

LIO

NS

SEC

TOR

MILLIONS

DATA POINTS

• From 2013 to 2014, median CEOpay rose 7.8%, a slight changefrom the 7.4% increase from 2012to 2013 (Fig. 1)

• Median CEO pay in the S&P 500grew only 0.9% in 2014 (Fig. 2)

• Median compensation was highestin the healthcare sector and lowestin the financial sector (Fig. 3)

2015 CEO Pay Strategies | 6

Pay Components

The graphs below illustrate the degree to which CEO

compensation trends over the last five years were driven by stock awards. Median values of all compensation elements in previous years were either relatively flat or down slightly except for stock. Performance-based stock awards in particular saw a steep growth prior to 2014. This year, it

appears as though this growth is beginning to plateau. The graphs below show the median value for each pay type, with 2014 values labeled.

In the S&P 500, the same trends played out at higher values, and stock played an even larger role in compensation packages.

Pay Components

DATA POINTS

• From 2010 to 2014, the medianvalue of performance-based stockcompensation in the S&P 1500increased 38.1%, from $1,358,422to $1,875,337, while bonusesincreased 12.4% and the mediansalary value increased 2.2% (Fig. 1)

• Options were the only componentthat diminished, with the medianvalue plummeting from its 2010figure of $346,600 all the way to$19,857 (Fig. 1)

• In the S&P 500, medianperformance-based stockcompensation increased by 31.1%since 2010 and 4.4% since 2013(Fig. 2)

• Options did not decrease assteadily as in the S&P 500, butthey still decreased by 6.0% from2013 to 2014 (Fig. 2)

0

0.5

1.0

1.5

2.0

2.5

StockSalary Bonus Options Other

.

.

.

.

0 08....

0 02

.

.

.

.

0 9

.

.

.

.

1 1

.

.

.

.

1 9

2013 20142010 2011 2012

BonusSalary Stock Options Other0

1.0

2.0

3.0

4.0

5.0

.

.

.

.

0 2

.

.

.

.

1 1....

1 4

.

.

.

.

2 1

.

.

.

.

4 5

2013 20142010 2011 2012

S&P 1500 Median Pay Component Values by Year 1

S&P 500 Median Pay Component Values by Year 2

MIL

LIO

NS

MIL

LIO

NS

2015 CEO Pay Strategies | 8

Pay Components (continued)

Economic sectors varied in the degree to which they relied on various compensation vehicles. The graph above breaks down CEO compensation according to its component sectors and indices and by the main components of pay, cash, and equity (as well as “other,” which includes deferred compensation, benefits, and perquisites). Larger companies, as well as technology,

basic materials, and healthcare companies, all relied particularly heavily on equity. For the S&P 1500 as a whole, the percentage of compensation paid in equity stood at 56.1% and cash at 40.6%. However, average equity rose from small- to mid- to large-cap companies, with equity at 60.5% of the average pay mix among S&P 500 companies.

DATA POINTS

• S&P SmallCap 600 companieshad the highest percentage ofpay attributable to cash at 49.5%,higher than any individual sector(Fig. 3).

• The basic materials and healthcaresectors each had relatively highequity at 58.0% and 60.9% of theaverage pay mix, respectively.The only sector to have a higherpercentage of pay in cash thanequity was the financial sector,which had a mix of 49.7% cashand 45.6% equity (Fig. 3)

0 20 40 60 80 100

36% 4% 3%

4%

3%

3%

3%

4%

4% 4%

3%

3%

3%

60%55%

45%

53%

58%

49%

46%

61%52%

52%

58%

54%

42%

51%

44%

39%

47%

50%

35%44%

45%

39%

43%

OtherEquityCash

S&P 500S&P 400S&P 600S&P 1500 Basic Materials Consumer Goods Financial Healthcare Industrial Goods Services Technology Utilities

S&P 1500 Average Pay Mix (Cash vs. Equity) 3

2015 CEO Pay Strategies | 9

Pay Components (continued)

DATA POINTS

• Bonuses had the highest averagepercentage of total compensationwithin the financial and industrialgoods sectors, at 28.1% and25.6%, respectively (Fig. 4)

• Options were particularly importantwithin the healthcare sector at23.9%, compared to 12.9% onaverage in the S&P 1500 (Fig. 4)

• The highest salaries as apercentage of total compensationwere in the S&P SmallCap600, while salaries made upa much lower percentage oftotal compensation at S&P 500companies (Fig. 4)

4%

S&P 500

S&P 400

S&P 600

S&P 1500

Basic Materials

Consumer Goods

Financial

Healthcare

Industrial Goods

Services

Technology

Utilities

Basic Materials

Consumer Goods

Financial

Healthcare

Industrial Goods

Services

Technology

Utilities

0 20 40 60 80 100

13% 23% 43% 17% 3%

12% 3%

10% 4%

13% 3%

14% 3%

17% 3%

9% 3%

27% 5%

22% 3%

23% 4%

16% 3%

4% 3%

11% 3%

14% 3%

5% 5%

24% 4%

16% 4%

16% 3%

15% 3%

3% 3%

18% 24% 42%

28% 23% 35%

20% 23% 40%

13% 19% 50%

12% 25% 43%

12% 30% 46%

11% 19% 39%

12% 25% 39%

14% 24% 35%

12% 20% 49%

14% 24% 56%

17% 22% 47%

24% 24% 35%

22% 28% 41%

17% 18% 37%

18% 26% 36%

22% 23% 36%

20% 19% 43%

14% 24% 51%

Options OtherSalary Bonus Stock

S&P 1500 Average Pay Mix4

S&P

150

0 SE

CTO

RS

S&P

500

SE

CTO

RS

IND

ICE

S

2015 CEO Pay Strategies | 10

Pay Components (continued)

As pay for performance has come under public scrutiny, discretionary bonuses have been phased out in favor of more short-term, incentive-based compensation. In 2010, 77.2% of S&P 1500 CEOs received short-term incentive plan bonuses, compared to 83.5% in 2014.

DATA POINTS

• The prevalence of discretionarybonus payouts declinedsignificantly among S&P 1500companies, decreasing from 23.6%to 14.5% (Fig. 5)

• Conversely, the prevalence ofshort-term cash incentive payoutscontinued to increase acrossthe board, growing from 77.2%to 83.5% prevalence from 2010to 2014 in the S&P 1500, andlong-term cash incentive payoutsremained relatively stable (Fig. 5)

20102010 2011 2012 2013 2014

10%

20%

80%

100%

.

.77%

.

.77% .

.78%

.9%

.8%.

9%

.7%

.

.82% .

.84%

24%...

19%...

19%...

15%...

14%...

8%

STI LTIDiscretionary

S&P 1500 Prevalence of Cash Bonus Payouts 5

2015 CEO Pay Strategies | 11

While overall trends of increasing STI payouts, stable LTI payouts, and decreasing discretionary bonuses were consistent across the last five years, the breakdowns varied significantly by sector.

DATA POINTS

• Discretionary bonuses were mostcommon in the financial sector,present at 22.8% of companies,compared to 14.5% in the overallS&P 1500 (Fig. 6)

• The utilities sector had thehighest prevalence of STIpayouts, at 100.0% of companies,compared to 83.5% in the overallS&P 1500 (Fig. 6)

Pay Components (continued)

0 20 40 60 80 100

S&P 500

S&P 400

S&P 600

S&P 1500

Basic Materials

Consumer Goods

Financial

Healthcare

Industrial Goods

Services

Technology

Utilities

88%

12%

11%

88%13%

8%

84%

14%

8%

77%

18%

6%

87%

15%

9%

23%

10%

13%

13%

13%

15%

84%

77%

85%

88%

83%

82%

2%

98%

10%

12%

4%

8%

19%

8%

5%

STI DiscretionaryLTI

S&P 1500 Prevalence of Cash Bonus Payouts by Sector6

S&P

150

0 SE

CTO

RS

IND

ICES

2015 CEO Pay Strategies | 12

Performance Equity and

Equity Mix

DATA POINTS

• Performance awards were a morepopular vehicle for S&P 1500 CEOawards than either time-basedoptions or time-based stock (Fig. 1)

• Although on the decline, time-based options were still moreprevalent than time-based stock inthe S&P 500 (Fig. 2)

The type of equity that large American companies use to

incentivize their executives changed over the period studied. The years since 2010 saw performance-based equity take center stage, with the share of S&P 1500 CEOs receiving it rising from 45.9% to 82.2%. Performance-based equity was even more popular within the S&P 500, received by 83.2% of CEOs. Options, meanwhile, declined from a prevalence of 55.0% among S&P 1500 companies in 2010 to 47.1% in 2014. Larger companies were more likely to grant each type of equity, and they generally relied on a greater diversity of equity vehicles.

2010 2011 2012 2013 201440

60

80

10082%60%47%

63%55%48%56%

54%49%

55%55%51%

55%54%46%

Time-Based Options Performance Awards Time-Based Stock

2010 2011 2012 2013 201440

60

80

100

40

0

08

001

40

60

80

100

67%58%51%

70%63%50%

70%60%48%

76%60%50%

83%58%53%

Time-Based Options Performance Awards Time-Based Stock

S&P 1500 Equity Vehicles by Grant Prevalence 1

S&P 500 Equity Vehicles by Grant Prevalence2

MIL

LIO

NS

MIL

LIO

NS

Performance Equity and Equity Mix

2015 CEO Pay Strategies | 14

While performance-based awards were more prevalent than time-based stock or options, this was most pronounced among the largest companies. In both the S&P MidCap 400 and the S&P SmallCap 600, the gap between the prevalence of performance-award and time-based-stock was slightly narrower. Performance awards were also the most common equity vehicle within each individual sector.

DATA POINTS

• The healthcare sector had thehighest prevalence of performance-based equity awards at 92.2%, whilethe lowest prevalence was in theutilities sector, with a prevalence of65.5% (Fig. 3)

• The utilities sector had the lowestprevalence by far of time-basedoptions at just 16.4%, comparedto 47.1% in the S&P 1500 as awhole (Fig. 3)

0 20 40 60 80 100

S&P 500

S&P 400

S&P 600

S&P 1500

Basic Materials

Consumer Goods

Financial

Healthcare

Industrial Goods

Services

Technology

Utilities

53%

83%

58%

59%

80%

44%

60%

82%

47%

66%83%

40%

72%

88%

82%

75%

92%

86%

81%

86%

50%

61%

63%

54%

65%

16%

58%

52%

53%

28%

75%

58%

54%

43%

65%

Time-Based Options Performance Awards Time-Based Stock

58%

S&P 1500 Equity Vehicles by Grant Prevalence Sector Breakdown3

Performance Equity and Equity Mix (continued)

S&P

150

0 SE

CTO

RS

IND

ICE

S

2015 CEO Pay Strategies | 15

The following two charts show the mix of equity vehicles (time-based options, time-based stock, and performance-based equity) awarded to CEOs from 2010 to 2014. The two indices were similar in the sense that overall the use of any single equity vehicle declined, while combinations of equity

increased significantly. In the S&P 1500, a combination of restricted stock and performance stock was the most common, whereas the most prevalent grant practices in the S&P 500 consisted of options and performance shares or options, restricted shares, and performance shares.

Performance Equity and Equity Mix (continued)

DATA POINTS

• Equity mixes that included performance-based awards had the highest prevalence in 2014. All such mixes were up sharply in prevalence over the five-year period, except for the use of performance shares by themselves (Fig. 4, 5)

• The number of companies that did not grant any equity dropped to 7.7% (Fig. 4, 5)

• While in the S&P 1500, the most common equity vehicle mix wasa combination of restricted stock and performance stock, the most common mix in the S&P 500 wasa combination of options and performance stock (Fig. 4, 5)

0

5

10

15

20

25

No Equity O Only RS Only PS Only O & RS O & PS RS & PS O & RS & PS

23%...

17%...14%

.

.

.11%...

14%...

9%...

5%...

8%...

2013 20142010 2011 2012

No Equity O Only RS Only PS Only O & RS O & PS RS & PS O & RS & PS0

5

10

15

20

25

6%... 4%

.

.

.

15%...

9%...

22%...

18%...

21%...

4%...

2013 20142010 2011 2012

S&P 1500 Grant Equity Mix4

S&P 500 Equity Grant Mix5

MIL

LIO

NS

MIL

LIO

NS

2015 CEO Pay Strategies | 16

©2015 Equilar, Inc. The material in this report may not be reproduced or distributed in whole or in part without the written consent of Equilar, Inc. This report provides information of general interest in an abridged manner and is not intended as a substitute for accounting, tax, investment, legal or other professional advice or services. Readers should consult with the appropriate professional(s) before acting on information contained in this report. All data and analysis provided in this report is owned by Equilar, Inc.

For more information, please contact us at info@equilar.com.

The contributing authors of this report were Xiao Bi, Erin Hansen, and Eric Wang, Research Analysts.

1100 Marshall Street Redwood City, CA 94063 Phone: (650) 241-6600 Fax: (650) 701-0993 E-mail: info@equilar.com www.equilar.com