As the 2026 U.S. proxy filing season reaches its peak, a distinct set of trends in Chief Executive Officer (CEO) compensation has emerged, building upon patterns observed in recent years. CEO pay has continued its steady upward trajectory, with incentive design practices demonstrating ongoing evolution. As shareholders actively participate in the "say-on-pay" votes this proxy season, key areas of heightened investor scrutiny include the alignment of pay with performance, the rigor of incentive structures, and the time horizon of incentives.
CEO Pay Climbs to Record Highs
In fiscal year 2025, CEO compensation experienced a consistent increase, achieving new record levels for both the S&P 500 and the Russell 3000 indices. Historically, the Russell 3000 has been characterized by more sporadic pay movements, whereas the S&P 500 has shown a more consistent decade-long rise. This year, both indices have registered modest increases, reflecting a continuation of long-term trends rather than a divergence from past patterns.
Median CEO total compensation has demonstrated a steady upward trend over the past five years. This growth has been more pronounced among S&P 500 companies compared to smaller public companies. For S&P 500 firms, median CEO pay rose from approximately $14.5 million in 2021 to $17.5 million in 2025, marking a cumulative growth of roughly 21% over this period. In contrast, median CEO pay at Russell 3000 companies outside the S&P 500 saw a more moderate increase, from about $5.2 million to $5.6 million. Following a slight dip, CEO compensation resumed its upward trajectory in both cohorts, with larger-cap companies exhibiting stronger and more consistent increases.
Five-Year Growth in S&P 500 vs. Russell 3000 CEO Pay
The data from ISS-Corporate, a leading provider of governance and compensation advisory services, highlights these diverging trends. Subodh Mishra, Global Head of Communications at ISS STOXX, noted that these insights are based on a detailed analysis by Craig Benedict, Associate Vice President for Compensation and Governance Advisory, and Chris Sayo, Senior Associate for Data Analytics, both at ISS-Corporate.
CEO Pay Diverges Across Industries
While fiscal year 2025 data indicates a continuation of the overall upward trend in median CEO compensation, the experiences across different industries have been more varied. Last year, all industries had observed elevated pay levels compared to the preceding five years. However, this year, sectors such as Banks, Automobiles & Components, and Real Estate Management & Development have shown declines in CEO pay relative to fiscal year 2021. The Real Estate sector, in particular, experienced the most significant decrease, likely attributable to the recent slowdown within the broader real estate market. Conversely, Telecommunication Services recorded the strongest growth, with median CEO pay reaching $9.1 million, a substantial increase from $5.9 million in fiscal year 2021.
Industries Driving CEO Pay Growth
The divergence in industry performance has directly influenced CEO compensation outcomes. For instance, the robust growth in the Telecommunication Services sector can be linked to increased demand for digital infrastructure, cloud services, and advanced connectivity solutions, driven by ongoing digital transformation initiatives across businesses and consumers. In contrast, the decline in Real Estate compensation may reflect higher interest rates, reduced transaction volumes, and broader economic uncertainties impacting property values and development projects.
The automotive sector’s mixed performance in CEO pay could be influenced by the significant investments required for the transition to electric vehicles (EVs) and autonomous driving technologies, alongside ongoing supply chain challenges and evolving consumer preferences. Banks, often sensitive to interest rate environments and regulatory scrutiny, may have seen pay adjustments reflecting a more cautious economic outlook or specific sector headwinds.
Extended Vesting Horizons Draw Investors’ Attention
A significant theme emerging this proxy season is the increasing emphasis from the institutional investor community on longer time horizons for aligning executive compensation with company performance. A growing number of investors are advocating for extended vesting periods for time-based equity awards, and some are questioning the perceived rigor of performance conditions attached to long-term equity grants.
It is noteworthy that both Institutional Shareholder Services (ISS) and Glass Lewis, leading proxy advisory firms, have updated their pay-for-performance frameworks. These updates include extending the lookback period for quantitative performance tests. Furthermore, ISS has revised its policy to consider time-based awards with extended vesting structures as a positive factor, provided that the combined vesting and post-vesting holding periods of these awards span a minimum of five years. This policy adjustment signals a clear investor preference for incentive structures that promote sustained long-term value creation.
A Minority of Companies Maintain 5+ Year Holding Horizons
Despite this growing investor preference, the adoption of extended vesting horizons remains relatively uncommon. Data indicates that fewer than 10% of S&P 500 companies currently implement time-based equity awards with such extended time horizons. Moreover, over the past five fiscal years, a three-year vesting period has become increasingly prevalent as the market standard. This trend appears to be driven by a reduction in both shorter and longer vesting schedules, with the three-year mark emerging as a widely accepted norm.
The implications of this trend are significant. Companies that continue to rely on shorter vesting periods might face increased scrutiny from investors who prioritize long-term alignment. Conversely, those that successfully implement and clearly articulate the rationale behind extended vesting periods, particularly those spanning five years or more, may find greater shareholder support. This approach can demonstrate a commitment to sustainable growth and long-term value creation, potentially mitigating concerns about short-termism in executive decision-making.
ISS-Corporate’s Approach to Proxy Season Insight
As CEO compensation continues its upward trajectory and incentive design practices become more sophisticated, the fiscal year 2025 data analyzed by ISS-Corporate confirms that investor scrutiny remains intense across critical areas. These areas include the fundamental alignment of pay with performance, the robustness and effectiveness of incentive structures, and the strategic time horizon embedded within these incentives.
Shareholders actively engage in the "say-on-pay" process, evaluating companies based on several key performance and compensation metrics. These assessments are crucial for determining the level of shareholder support for executive compensation plans.
ISS-Corporate’s Compensation and Governance Advisory team plays a vital role in assisting companies in navigating these complexities. Their services encompass comprehensive pay-for-performance risk assessments, providing detailed peer benchmarking to contextualize compensation levels, and offering strategic advice on the design of incentive structures. Additionally, they review draft proxy disclosures to ensure clarity, transparency, and alignment with prevailing investor expectations and governance best practices. This proactive engagement helps companies better anticipate and address potential shareholder concerns, fostering more constructive dialogue throughout the proxy season.
The evolving landscape of CEO compensation and incentive design underscores the dynamic relationship between corporate management and its shareholders. As investors increasingly prioritize long-term value creation and robust governance, companies must adapt their compensation strategies to meet these expectations, ensuring that executive rewards are demonstrably linked to sustainable business success.
