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Pearl Meyer & Partners Survey Finds Companies Forging Stronger Links Between Executive Pay and Performance NEW YORK, November 15, 2010 – Companies are toughening the standards and enforcement of performance-based executive pay programs for 2011, as they reassess many long-time practices that have come under fire by shareholders and regulators, according to a new survey by independent compensation consultancy Pearl Meyer & Partners.
For example, 44% of companies increased their annual bonus performance requirements in 2010 and 41% expect to do so in 2011, compared to just 26% in 2009. Companies also are more reluctant to allow incentive payouts unless performance targets are met: in 2010 only 18% of companies deviated from plan performance formulas to allow a bonus payout though performance targets were not met, down from 24% a year earlier.
“As the economy recovers, companies are tinkering with their program mechanics to ensure they drive key goals and deliver an appropriate level of rewards for meaningful results,” said Jim Heim, a Managing Director of Pearl Meyer & Partners.
The full survey, Compensation Planning: Looking Ahead to Executive Pay Practices in 2011, is available at http://pearlmeyer.com/paypractices2011.The survey was conducted in August and September of 2010 and includes 279 participants, ranging from the Fortune 50 to emerging high-growth companies.
More performance-based LTI equity awards, better alignment with pay among high-performers
Performance-based long-term incentives will account for 47% of executive incentive value in 2011, up from 37% in 2009. In contrast, use of “plain vanilla” stock options and stock appreciation rights (SARs) are expected to decline to 24% of award value in 2011 from 34% in 2009.
Among the “strong performing companies” (i.e., those that report outperforming their peers with respect to revenue growth, profitability and shareholder return), performance-based long-term incentives are projected to account for 45% of long-term incentive value in 2011, contrasted with 26% of value among poor performers.
Continued restraint in executive base salaries for 2011
Relatively modest growth in executive salaries is expected to continue into 2011, with 55% of companies projecting a 2-4% salary increase and just 5% expecting more than 5% growth. A salary freeze or cut is planned by 6% of companies in 2011, down sharply from 27% of companies a year earlier.
Executive benefits on the wane
The use of full “gross-ups” termination provisions (payments to cover executive taxes triggered by “parachute” severance payments following a change-in-control) is projected to decline from 44% in 2009 provided to 38% in 2011. Eleven percent of companies eliminated executive car allowances or company-provided cars in 2010 and 8% plan to do so in 2011, while 27% decreased executives’ personal use of corporate aircraft in 2010 and 23% plan to do so in 2011.
About Pearl Meyer & Partners
For more than 20 years, Pearl Meyer & Partners (www.pearlmeyer.com) has served as a trusted independent advisor to Boards and their senior management in the areas of compensation governance, strategy and program design. The firm maintains offices in New York, Atlanta, Boston, Charlotte, Chicago, Houston, Los Angeles and San Jose.
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