Survey: Companies Tighten Link Between Executive Pay and Performance

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A new Towers Watson survey on executive pay practices for more than 250 midsize and large U.S. companies suggests that the declines in total executive compensation in 2008 and 2009 may be reversed this year in some companies. However, most U.S. companies remain focused on shareholder perceptions and the alignment between executive pay and business performance in the economic recovery. The survey results also show that few U.S. companies feel very well prepared to put their executive pay programs up to a “say on pay” shareholder vote.

Specific findings show:

• Many companies expect modest increases in bonus funding and to make larger long-term incentive grants in 2010 than last year as a result of improving business conditions and the recovery in share prices (Figure 1).
  
  
   
• Following a couple of years of widespread salary freezes/reductions and smaller or nonexistent bonuses at many organizations, the vast majority of companies say they are likely to address executive retention issues at least to some extent as the recovery picks up speed.
• At the same time, most companies are taking a thoughtful approach to changing their executive pay programs (Figure 2). Respondents say they are continuing — if not intensifying — efforts to fine-tune their executive compensation programs and governance processes, respond to shareholder concerns about certain pay practices, and ultimately strengthen the link between executive pay and performance. In addition, two-thirds of the responding companies are making changes this year to their annual incentive plans, while slightly more than half are making changes to their long-term performance plans.
  
  
   
• Relatively few of the 251 companies responding to the survey believe they’re fully prepared to put their pay practices to a shareholder vote, as the new financial services reform legislation will require. 

About the Survey

Our recent Executive Compensation Flash Survey was conducted online between June 7 and June 14, 2010. A total of 251 U.S. organizations responded to the survey, primarily midsize and large companies spanning a broad range of industries. Over 80% of the responding companies report annual revenues exceeding $1 billion, and over 40% have more than $5 billion in annual revenue. Senior HR professionals and executives at the director level and above made up the bulk of the survey respondents.