Report: In Today's Cutthroat Competition, Low-Performing CEOs Have Less Chance of Keeping Their Job

Rhea-AI Summary

A new report by The Conference Board, ESGAUGE, Heidrick & Struggles, and Semler Brossy reveals increasing pressure on underperforming CEOs. 42% of S&P 500 companies that changed CEOs in 2024 had total shareholder returns below the 25th percentile, up from 30% in 2017. While women CEOs increased to 10% in S&P 500 companies, 69% lead smaller firms with revenue under $5 billion. The study shows 77% of new S&P 500 CEOs were internal hires, with external hires commanding 33% higher compensation. CEOs are staying longer, with succession rates for those 64+ dropping 8% in 2024, potentially indicating a future 'retirement cliff'.

Positive

• Internal CEO promotions remain strong at 77% for S&P 500 companies
• Women CEO representation increased to 10% in S&P 500, up 4 percentage points since 2018
• Longer CEO tenures indicate stability, with 27% of incoming S&P 500 CEOs having 20+ years company experience

Negative

• 42% of S&P 500 companies changing CEOs had poor performance (below 25th percentile TSR)
• External CEO hires cost 33% more than internal promotions
• 69% of women CEOs are to smaller companies (<$5B revenue)
• Only one woman CEO appointment at companies over $25B revenue

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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

FAQ

What percentage of S&P 500 companies that changed CEOs in 2024 had poor performance?

42% of S&P 500 companies that changed CEOs in 2024 had total shareholder returns below the 25th percentile, up from 30% in 2017.

What is the current percentage of women CEOs in S&P 500 companies in 2024?

Women held 10% of CEO positions in S&P 500 companies in 2024, representing a 4-percentage-point increase since 2018.

How much more are external CEO hires paid compared to internal promotions?

External CEO hires were paid 33% more than internal CEO promotions in 2023 across S&P 500 and Russell 3000 companies.

What percentage of new S&P 500 CEOs were internal hires in 2024?

77% of new S&P 500 CEOs were internal hires in 2024.