Severance pay for Russell 3000 CEOs has almost halved since reaching a peak in 2020 due to the onset of the COVID-19 pandemic.

In 2023, CEOs averaged $2.7 million in severance pay, a 6.2% decline compared to 2022 and an almost 50% decline when compared to the 2020 high of $5.2 million, DMI data show.

Severance payments are also winning increased investor backing, with golden parachute proposals put to a vote at Russell 3000 companies in 2023 securing 74.4% average support, up from 71.8% average support in 2022, according to Diligent Market Intelligence Voting data.

Yet, shareholders are also becoming more vocal, submitting proposals calling for votes on such payments to become standard practice and stepping up their engagements on the issue. In 2023, 43 proposals seeking votes on severance payments were subject to a vote at Russell 3000 companies, a 152% increase when compared to 2022.

C-suite roles

Average CEO severance pay fluctuated from $2.6 million in 2018 to $3.3 million in 2019, before peaking at $5.2 million in 2020, as the COVID-19 pandemic raged. Since then, the figure has steadily dropped to $3 million in 2021, $2.9 million in 2022 and $2.7 million last year.

In three out of the last six years, CEOs received more substantial payments than their C-suite peers, with certain sectors such as financials and communication services granting the highest of such termination payouts.

In the period since 2018, CEOs received the highest average severance pay of all C-suite roles in 2019, 2020 and 2023.

After the CEO, the role of chief financial officer (CFO) secured the second-highest average severance pay in 2023, at $2.2 million. This was followed by chief technology officer (CTO), at $1.3 million.

However, the role of chief investment officer (CIO) took the top spot for highest average severance pay in both 2018 and 2022, at $2.9 million in both years.

In 2021, the chief human resources officer (CHRO) role averaged the highest severance pay, at $3.9 million, followed by the CEO role, at $3 million.

More modest payments win investor backing

As boards present more conservative severance payments, shareholder support for such payouts increased by approximately three percentage points to 74.4% in 2023. Just under 17% of management severance pay plans failed to win majority backing in 2023, compared to 27% a year prior.

Severance payments which failed to secure the approval of shareholders were often criticized for awarding excessive quantum without sufficient justification. When casting votes against various 2023 golden parachutes, Calvert Research & Management raised concerns regarding how some companies enabled performance shares to be earned at maximum “without a clear and compelling rationale disclosed.”

Allianz Global Investors also questioned proposed payouts being made upon voluntary termination, while flagging questionable change-in-control provisions.

In 2023, in a bid to standardize the quantum of severance payments, shareholders filed proposals urging issuers to submit these payments to a vote. In the Russell 3000, 43 proposals of this kind won 23% average support, compared to 17 winning 45% support a year prior. In both years, four of these proposals secured majority support.