While many executive compensation decisions in North America remain subject to scrutiny by shareholders, governance advocates and regulators, nearly two-thirds (63 percent) of companies expect incentive plans to fund at or above target levels for 2011 performance, according to a survey by Mercer, an HR consultancy.
Mercer’s Executive Compensation and Talent Management 2012 Survey, conducted in December 2011, includes responses from more than 280 U.S. and Canadian organizations. While the majority of companies reported making changes to plan performance measures in 2011, most companies are stabilizing their annual and long-term incentive programs despite renewed market volatility in the latter part of 2011.
The survey found that:
• Slightly above one-quarter (26 percent) of companies expect to change the weighting of performance measures in annual incentive plans.
• Just under one-quarter (24 percent) plan to change the measures used in performance-based long-term incentive plans.
The top drivers for changing annual incentive programs and long-term incentive programs were to align with industry or peer group practices, align with best practices and reward or retain top talent.
“As a result of the ongoing global economic uncertainty, companies are still being cautious about making significant changes to their executive compensation programs,” said Barry Buck, a partner in Mercer’s talent, rewards and communication business. “However, the changes being considered clearly recognize the importance of maintaining best practices and differentiating pay to retain top talent.”
Long-Term Incentive Grants
Mercer’s survey shows the mix of long-term incentive awards is not expected to change significantly. The most notable change, reflecting a continuing trend, is an increase in the weighting of performance share units for executives (10 percent of companies plan to increase the weighting).
Although few companies are considering changes to their long-term incentive compensation programs, the most prevalent changes include:
• The differentiation of grant sizes based on individual performance (29 percent of companies are planning this change for executives in 2012 and 25 percent for nonexecutives).
• Increasing the weighting of absolute performance measures (12 percent of organizations).
More than half (54 percent) of companies take succession planning into account when making compensation decisions, according to Mercer's survey, and 56 percent use base salary as well as incentive compensation to support retention of key talent as part of the succession planning process.
“Succession planning will likely have a stronger impact on executive compensation decisions as companies look to engage and retain future leaders,” said Patrick Shannon, a partner in Mercer’s talent, rewards and communication business.
Above-Peer CEO Pay Decreased 'Say-on-Pay' Support for Management, SHRM Online Compensation Discipline, March 2012
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