How CEO compensation packages combine cash, equity and perks
Public company executives receive salary, performance bonuses, stock awards and perquisites. Boards benchmark against peers and manage shareholder scrutiny through say-on-pay votes.
A public company CEO's compensation package looks deceptively simple in headlines reporting a $10 million or $50 million pay package. Those figures mask a complex structure: cash salary, a performance bonus tied to company metrics, stock options and restricted stock units vesting over years, and perquisites like corporate aircraft and security services. The combination has evolved to tie executive wealth to shareholder returns while creating tax and accounting complications that require board oversight.
Public companies disclose all of this in proxy statements filed with the SEC, but the details matter. How much is cash, how much is equity, what happens to that equity if the stock falls, and what tax bill arrives when vesting happens—these decisions shape whether a CEO's pay actually aligns with shareholder interests or subsidizes personal enrichment.
The cash component: salary and performance bonus
The foundation of CEO compensation is ordinary cash: base salary and a performance bonus tied to specific company metrics. Salary is typically in the range of $500,000 to $2 million for S&P 500 companies, though this varies widely by company size and industry. Bonuses are calculated against targets—revenue growth, profitability, market share—and can range from zero to 200 percent of the target depending on performance.
This cash is subject to ordinary federal and state income tax at the time of payment and, in New York, subject to state income tax and city income tax for executives working in the city. Unlike equity, there is no tax timing complexity: cash paid is cash taxed in that year.
Stock options and restricted stock units
Equity compensation typically comes in two forms: stock options and restricted stock units (RSUs). Stock options give the CEO the right to buy company shares at a set price—called the exercise price—over a period of years, typically up to ten years from grant. RSUs are promises to deliver shares of company stock upon vesting, which usually occurs over a three- to five-year service period.
The difference matters for risk and value. Options become worthless if the stock price falls below the exercise price, while RSUs retain value as long as the stock has value. Options reward stock appreciation above the strike price; RSUs reward ownership from the grant date forward. Most large companies now use a mix of both to balance stability with upside incentives.
The exercise price of stock options must be set at or above the fair market value of the stock on the grant date under IRS Section 409A. If an option is granted below fair market value, the executive faces a 20 percent penalty tax in addition to ordinary income tax on the difference. For public companies, fair market value is typically the closing stock price on the grant date.
Taxing equity compensation
Equity compensation creates a tax surprise for many executives: vesting triggers an immediate tax bill even before the executive sells a share. When an RSU vests, the executive recognizes ordinary income equal to the fair market value of the stock on the vesting date. If 1,000 RSUs vest when the stock trades at $100, the executive owes ordinary income tax on $100,000—even if those shares are not yet sold.
Employers are required to withhold taxes on vesting, but the withholding is often insufficient to cover the executive's total tax liability, which depends on the executive's total income that year. Executives in New York face federal income tax, plus New York State income tax and New York City income tax on the ordinary income recognized at vesting.
Any gain after vesting is treated as a capital gain. If an executive holds the shares for more than one year after vesting, the subsequent gain qualifies for the long-term capital gains rate, which is lower than the ordinary income rate. This is why compensation advisers often recommend holding vested shares for at least one year before selling, though this exposes the executive to continued stock price risk.
How boards set compensation
Compensation committees—independent directors on the board's compensation committee—set CEO pay. They typically retain independent compensation consultants to gather market data on how peer companies pay their executives. The committee uses this benchmarking to position the CEO's total pay at a target percentile of peers, often the 50th or 75th percentile.
Benchmarking is a starting point, not a formula. Committees also consider company performance, the CEO's tenure and track record, and internal equity with other executives. The board must approve the compensation structure before it is implemented.
Shareholder say-on-pay votes have become a significant check on compensation since the Dodd-Frank Act of 2010 required advisory votes at least once every three years, though most companies hold them annually given investor pressure. If a significant percentage of shareholders vote against compensation in the say-on-pay vote, boards take notice and often modify the structure in the following year. Weak say-on-pay support at one company can influence how peer companies structure their own compensation.
“When an RSU vests, the executive recognizes ordinary income equal to the fair market value of the stock on the vesting date, triggering an immediate tax bill even before the executive sells a share.”
Perquisites: aircraft, security and other benefits
Beyond salary, bonus and equity, large companies provide perquisites to CEOs. Personal use of corporate aircraft is the most common and most valuable. Among S&P 100 companies, 76 percent provide personal aircraft use, with a median value of $210,000 in 2024. For security purposes, many companies require their CEO to use private aircraft for all travel, not just personal trips.
Security services are increasingly common. Among S&P 100 CEOs, 59 percent receive company-paid personal security and residential security services, with a median value of $111,000 in 2024. Financial planning services, company cars and drivers, and executive health exams are less common but still provided by 40 percent or fewer of companies.
All perquisites are taxable to the executive as ordinary income and must be reported in the company's proxy statement under 'All Other Compensation.' The company must withhold and report these values on the executive's W-2 or 1099 form.
SEC disclosure and shareholder visibility
Public companies disclose all compensation in the proxy statement filed annually with the SEC. The Compensation Discussion and Analysis section requires the company to explain its compensation philosophy, the role of each component, and how the board arrived at specific pay decisions. A Summary Compensation Table shows salary, bonus, stock awards, option awards, non-equity incentive compensation, pension value changes, and all other compensation for the CEO and other named executives for the past three fiscal years.
Since 2018, companies have also been required to disclose the ratio of CEO compensation to median employee compensation. This 'pay ratio' has created pressure on boards to justify CEO compensation that exceeds median employee pay by 300 times or more. For New York companies, the disclosure requirement applies regardless of where the employees work.
