NEW
YORK, Nov. 4, 2024 /PRNewswire/ -- CEOs are
facing mounting pressure to deliver—or increasingly risk being
shown the door. The correlation is growing between total
shareholder returns (TSR) and CEOs staying on the job: 42% of
S&P 500 companies that changed CEOs in 2024 had a TSR that fell
below the 25th percentile, indicating low performance. This share
marks a steady increase from 30% in 2017.
That is according to a new report by The Conference Board,
ESGAUGE, Heidrick & Struggles, and Semler Brossy. The study
examines several aspects of CEO succession, including a gender
analysis: While the share of women CEOs has grown, the vast
majority (69%) of incoming female CEOs are being hired by smaller
firms with less than $5 billion in
revenue. Only one appointment was made at a company with over
$25 billion in revenue.
The study also reveals that CEOs are staying in their roles
longer. For example, succession rates for those aged 64 and older
dropped by 8% in 2024. "The fact that CEOs are staying longer may
point to a 'retirement cliff' on the horizon. Boards need to refine
their succession strategies to ensure they're prepared for a
potential wave of leadership transitions in the near future," said
Matteo Tonello, coauthor of the
report and Head of TCB Benchmarking and Analytics at The Conference
Board.
Additional findings include:
CEO Succession and Firm Performance
There's a growing link between total shareholder returns and
whether CEOs are shown the door:
- S&P 500: 42% of companies that changed CEOs in 2024 had a
TSR that fell below the 25th percentile, indicating low firm
performance. This share has steadily increased from 30% in
2017.
- Russell 3000: Nearly half
(45%) of companies that changed CEOs had a TSR below the 25th
percentile, increasing from 29% in 2017.
- Increased pressure on underperforming CEOs: "The gap in
succession rates between low- and high-performing companies has
widened significantly. It's a clear signal to CEOs: Deliver value
or face heightened scrutiny. However, boards should be cautious
about overemphasizing short-term results at the expense of
long-term strategy and sustainability," said Lyndon Taylor, Partner at Heidrick &
Struggles.
Women CEOs
The number of female CEOs has steadily risen in recent years,
but significant progress remains:
- S&P 500: Women held 10% of CEO positions in 2024, a
4-percentage-point increase since 2018.
- Russell 3000: Women held 8% of
CEO positions, a 3-percentage-point increase since 2018.
- Despite gains, more work to be done: "To truly move
the needle, larger firms should consider examining their talent
pipelines and succession planning processes. The rapid increase of
women on boards shows more change is possible," said Blair Jones, coauthor of the report and Managing
Director at Semler Brossy.
Internal vs. External CEO Hires
Companies continue to favor internal promotions for CEO
openings:
- S&P 500: 77% of new CEOs were internal hires in 2024.
- Russell 3000: 59% were
internal hires.
- In-house experience remains valuable: "Internal
candidates are often favored due to their extensive institutional
knowledge and understanding of company culture. Yet, our research
shows that firms facing performance declines tend to recruit
externally, likely because their new insights can catalyze
transformation," said Jason
Schloetzer, coauthor of the report and professor at
Georgetown University.
It pays to stay put: At larger companies, nearly 30% of
incoming CEOs have 20+ years at the company:
- S&P 500: The share of incoming "insider" CEOs with +20
years of tenure-in-company is 27% in 2024, up from 18% in 2022.
Average tenure of incoming internal CEOs is 17 years.
- Russell 3000: Average tenure
is 10 years.
Incoming CEOs are paid less than externally hired
ones:
- S&P 500 and Russell 3000:
On average, externally hired CEOs were paid 33% more than internal
CEOs in 2023.
- External hires need more incentives: "Internal
candidates are often new to the job, and their long-term incentive
plan tends to increase their pay as they gain skills in the role.
Moreover, internal candidates have already accumulated equity in
the company, whereas outside hires need upfront grants to replace
the equity from their prior job," said Umesh Tiwari, Executive Director of
ESGAUGE.
Note: Findings are based on proxy statements by Russell 3000 and S&P 500 companies up to
October 20, 2024.
About The Conference Board
The Conference Board is the member-driven think tank that
delivers Trusted Insights for What's Ahead™. Founded in 1916, we
are a non-partisan, not-for-profit entity holding 501 (c) (3)
tax-exempt status in the United States. www.ConferenceBoard.org
About ESGAUGE
ESGAUGE is a data mining and analytics firm uniquely designed
for the corporate practitioner and the professional service firm
seeking customized information on US public companies. It focuses
on disclosure of environmental, social, and governance (ESG)
practices such as executive and director compensation, board
practices, CEO and NEO profiles, proxy voting and shareholder
activism, and CSR/sustainability disclosure. Our clients include
business corporations, asset management firms, compensation
consultants, law firms, accounting and audit firms, and investment
companies. We also partner on research projects with think tanks,
academic institutions, and the media. www.esgauge.com
About Heidrick & Struggles
Heidrick & Struggles (Nasdaq: HSII) is a premier provider of
global leadership advisory and on-demand talent solutions, serving
the senior-level talent and consulting needs of the world's top
organizations. In our role as trusted leadership advisors, we
partner with our clients to develop future-ready leaders and
organizations, bringing together our services and offerings in
executive search, diversity and inclusion, leadership assessment
and development, organization and team acceleration, culture
shaping, and on-demand, independent talent solutions. Heidrick
& Struggles pioneered the profession of executive search more
than 70 years ago. Today, the firm provides integrated talent and
human capital solutions to help our clients change the world, one
leadership team at a time.® www.heidrick.com
Semler Brossy
Semler Brossy is a leading independent consulting firm. We
partner with Boards, Compensation and Human Capital Committees, and
Management teams to develop sound executive compensation and talent
strategies that address critical business issues, drive sustainable
business performance, align with stockholders' key priorities, and
steward the organization towards the long term. We serve a broad
cross-section of companies across industries, from the largest
global corporations to smaller, privately held firms. Clients
choose us for our partnership, thorough thinking, and creative
solutions. We take off where other firms finish.
www.semlerbrossy.com
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SOURCE The Conference Board