Compensation for chief executive officers at the nation's largest companies showed only a moderate increase in 2011, despite improved financial results, according to a recent analysis from global professional services firm Towers Watson.

A review of pay data from 225 Fortune 1000 companies' proxy filings found that median annual salaries increased 2.6 percent for chief executives in 2011, while annual bonuses remained flat. Those figures mark a reversal from 2010, when salary increases remained flat and annual bonuses increased 21 percent.

“It appears that most companies managed their executive compensation programs thoughtfully last year,” said Doug Friske, global head of executive compensation consulting at Towers Watson. “After seeing CEO pay levels increase sharply two years ago, reflecting the sharp rebound from the economic crisis, a return to more moderate increases last year makes sense in view of companies' financial results.”

Total direct compensation, which includes salary, annual bonuses, plus the grant value of long-term incentives—stock options, restricted stock and long-term performance plans—increased 5.6 percent in 2011 compared to an increase of 14.5 percent in 2010. As companies continue to focus on ensuring that incentive program metrics are well calibrated, 16 percent of companies exercised discretion to reduce bonuses, while 6 percent reduced long-term incentive payouts.

The mix of long-term incentives offered by major U.S. companies continues to evolve. For example, the median percentage of long-term incentive value delivered through long-term performance plans increased from 34 percent in 2009 to 40 percent in 2011. Meanwhile, the percentage of long-term incentive value provided through stock options declined from 43 percent in 2009 to 34 percent last year. The balance is delivered through restricted stock.

The analysis also found that CEO annual bonuses began to shift back toward more typical distributions around target levels, compared with 2010. Far fewer companies paid bonuses greater than 150 percent of target in 2011, while more companies paid bonuses ranging from 100 percent to 125 percent of target.

Additionally, rising stock prices fueled significant growth in the levels of pay realized by CEOs last year. While the target opportunity for long-term incentive grants awarded to CEOs in 2011 rose 5.7 percent at the median, the value of long-term incentives realized rose 32 percent.

Say-on-Pay Support

The analysis also found that most companies are receiving strong support in the second year of mandatory say-on-pay shareholder votes. The analysis “underscores the strong link between pay and performance and that companies are paying attention to shareholder concerns,” said Friske.

The analysis also found that the 103 companies that have disclosed their shareholder voting results both in the first and second year of mandatory say-on-pay votes so far reported average support of 90 percent of the votes cast this year, which is consistent with last year's voting results.

Only one company in the sample failed to win majority support for its say-on-pay resolution to date in 2012. Most companies (82 percent of the Russell 3000) will hold say-on-pay votes this year as a result of decisions to hold votes annually.

“Most companies continue to get pay right, which is important, as our research confirms that there are significant negative consequences from standing out from the crowd, setting up some interesting dynamics for compensation committees and management,” said Friske. “Clearly, companies are increasingly sensitive to shareholder concerns, and the increased emphasis on performance metrics, goals, and the alignment with pay is an outgrowth of that.”