Dive Brief:

• CFOs whose companies went public during the past two years netted average compensation of about $1.2 million, with annual and long-term incentive pay comprising 71% of the total, according to Alvarez & Marsal.
• CEO compensation at the newly-listed companies totalled approximately $2.6 million, with annual and long-term incentive pay making up about 80% of their pay package, Alvarez & Marsal said after analyzing financial reports from 497 companies with median market capitalization of $731 million.
• “Companies should ensure that their executive compensation programs are competitive with their market for talent throughout each phase of the company’s life cycle, including leading up to and after an initial public offering,” Alvarez and Marsal said in a report.

Dive Insight:

In a sign of a possible market recovery, initial public offerings have raised $27.3 billion during the first nine months of this year, 40% more than the same period in 2023 but well below levels early this decade, according to EY.

The payoff for companies that turned to the IPO market during the period exceeded returns on benchmark stock indexes, yielding average gains of 23.9% compared with increases ranging from 10.4% to 18.1% in the S&P 500 Index, the NASDAQ and the Dow Jones Industrial Average, EY said.

Several persistent headwinds slow a recovery in IPOs, including conflicts abroad, the risks of an economic downturn, the hard-to-predict outcome of the Nov. 5 elections and the possibility for post-election shifts in government policy shifts, EY said.

Companies mulling an IPO face an increasingly nettlesome set of legal, regulatory, financial and operational considerations, Alvarez & Marsal said.

“Public companies face additional regulations and greater disclosure requirements than private companies, particularly regarding the transparency of a company’s executive compensation programs,” the professional services firm said. “Because of the additional requirements, executive compensation has become a relatively complex aspect of preparing for an IPO.”

In short-term incentive plans, earnings are the most commonly used performance metric, with 78% of companies that have recently gone public setting it as a benchmark, Alvarez & Marsal said. Income/revenue is the second most prevalent metric, used by 61% of the companies.

Recent IPO companies most often use as a long-term compensation incentive “appreciation only” awards tied to an increase in a company’s stock price over a set period, Alvarez & Marsal said. Four out of five companies rely on such incentives.