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.