Compensation for executives at large and mid-size U.S. companies is expected to rebound modestly this year following two consecutive years of decline, according to a new survey by Towers Watson, a global professional services company. Additionally, most companies are planning to fine-tune their executive pay programs to further tighten the link between pay and performance as well as address a growing concern over executive retention.
Nearly half of the 251 companies surveyed expect to increase funding for annual bonuses for executives this year, while one-third expect to make larger long-term incentive grants this year compared to last year. However, the survey results suggest that most companies remain cautious about spending. Most (53%) of the companies increasing bonus funding are projecting relatively modest increases of 20 per cent or less.
The survey (based on responses from 251 publicly traded and privately held corporations in the United States representing a cross section of industries) found that companies plan to tweak their executive pay programs, and particularly their incentive plans in the wake of continuing pressure to better align their programs with business performance. Nearly two-thirds of respondents (66%) reported making at least some change to their annual incentive programs this year, while just over one-half (54%) expect to make revisions to their long-term incentive plans. The most common shift among performance metrics was to place greater emphasis on profit measures and revenue growth.
The Towers Watson survey also confirms that companies are now paying far more attention to executive retention issues during the economic recovery than previously. In fact, only one in 10 companies reported that executive retention is not an issue for their company. At the same time, and despite shareholder pressure, relatively few companies are making significant changes to other executive pay elements that could heighten retention risk, including employment agreements, golden parachutes, supplemental executive retirement plans and other non-performance-based compensation. (September 9th, 2010)
Source: Towers Watson