Background such as AI competition and increased CEO replacement… ‘Concerns about the practice of one-time compensation’

Background such as AI competition and increased CEO replacement… “Concerns about the practice of one-time compensation”

(New York = Yonhap News) Correspondent Lim Soo-jeong = It was found that large American companies are significantly increasing 'special compensation' separate from regular annual salary or performance bonus in order to retain key executives such as CEOs amid artificial intelligence (AI) competition and management uncertainty.

According to the Wall Street Journal (WSJ)'s analysis of executive compensation analysis company Equila data on the 2nd (local time), the one-time special compensation paid by Standard & Poor's (S&P) 500 companies to executives last year totaled $1.7 billion (2.288 trillion won), a 50% increase from the previous year.

Nearly half of S&P 500 companies have paid such compensation at least once in the past two years, and about a quarter have paid it more than twice.

In fact, Warner Bros. Discovery paid CEO David Zaslav a total of $165 million in compensation last year, of which $121 million was special stock compensation for signing new contracts.

Cybersecurity company CrowdStrike also granted $188 million worth of restricted stock as special compensation to co-founder and CEO George Kurtz in December last year.

Unlike regular performance bonuses paid based on the achievement of pre-determined goals such as sales or profits, such special compensation is often paid additionally outside the regular compensation system to prevent the departure of key executives, renew contracts, or recruit them.

For this reason, it is analyzed that the recent increase in special compensation is due to an increase in CEO replacement and competition to secure talent surrounding new industries such as AI.

According to Diligent, a corporate governance software company, 67 CEOs resigned from S&P 500 companies last year, a 29% increase from 2023, and 36 CEOs left their positions in the first half of this year.

“Boards are feeling the pressure, they are feeling the urgency of the situation,” said Blair Jones of compensation consultancy Semler Brosh.

Unlike in the past, when exceptional payments were made to executives who achieved unexpected results or solved difficult tasks, some companies have recently used it as a means of de facto regular compensation, raising concerns that it could undermine the existing compensation system.

“We’ve heard clearly from investors that one-time compensation should not be part of a repeating pattern,” said David Cockell, head of U.S. compensation research at ISS, a proxy advisory firm.