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Fewer Companies Offer CEOs Perks and Incentives
A steady cutback in nonperformance-based pay components

By Stephen Miller, CEBS  2/10/2012
 

Executive compensation packages in the U.S. are being dissected under a microscope as companies find it more difficult to offer perquisites and incentives without facing backlash from the public, according to Compdata Surveys' Executive Compensation 2011/2012 report.

The survey, fielded in late 2011, analyzed base pay and total cash compensation for more than 65 executive and senior management positions. Information was collected from more than 4,500 organizations across the U.S.

Perks

Among the key findings regarding perquisites, the percentage of companies that offered their CEOs the following perks declined:

• Any perk as a CEO offering fell from 89.8 percent in 2009 to 61.5 percent in 2011.

Company cars fell from 28.3 percent to 23.5 percent.

Annual physical exams fell from 21.4 percent to 16.9 percent.

Voluntary deferred compensation programs fell from 24.4 percent to 21.2 percent.

Long-Term Incentives

Long-term incentives took a hit as well, with some variation among U.S. regions:

• In the Western U.S., just 19 percent of companies offered long-term incentives to CEOs in 2011, down from 61.6 percent in 2009.

In the Southeast, 17.9 percent offered long-term incentives, down from 58.6 percent.

In the South Central region, only 10.4 percent of employers offered long-term incentives to CEOs, down from 47.2 percent.

Bonuses

Short-term bonus rewards saw a similar fate, with some of the largest drops seen in the hospitality, insurance and utilities industries:

In the hospitality sector, 40 percent of CEOs received bonuses in 2011, down from 65 percent in 2009.

In the insurance industry, 53.2 percent of CEOs received bonuses, down from 62.4 percent.

Among utilities, 12.5 percent of CEOs received bonuses, down from 20.9 percent.

“The impact the recession had on the economy caused many companies to take a hard look at the compensation packages they offer to all employees, and executives were not spared that scrutiny,” said Amy Kaminski, director of marketing for Compdata Surveys. “Though many are optimistic about the country’s economic future, companies may choose to take a guarded approach to offering additional perks and incentives to their top employees until significant improvements can be seen.”

Boards Tie Pay to Performance

Corporate directors in the U.S. say that setting appropriate goals for executive performance remains their biggest pay issue for 2012—and they give themselves high marks for their progress toward that goal, according to the Fourth Quarter 2011 Confidence Index survey by the National Association of Corporate Directors in collaboration with compensation consultancy Pearl Meyer & Partners.

More than one-third of board members ranked the selection of performance goals that are aligned with shareholder value creation as their top compensation challenge. Nearly 70 percent stated they were “confident” or “very confident” about how well their performance goals were aligned with shareholder value creation, and more than 80 percent said they were “confident” or “very confident” about how well their programs addressed the broad challenge of aligning CEO pay with performance.

“The results suggest directors recognize the importance of this issue and have an appetite for the challenges of trying to build better pay programs,” said Jim Heim, a managing director of Pearl Meyer & Partners. “There’s been a steady cutback in nonperformance-based pay components such as perquisites and contractual guarantees, and boards are spending more time benchmarking the alignment of relative pay and relative performance and then recalibrating to improve that alignment.”

Heim said the key will be applying that information consistently to the design of 2012 programs. Directors “need to go beyond measuring and disclosing plan results,” he noted, and they need to apply performance outcomes directly in selecting new metrics and calibrating future goals.

Stephen Miller, CEBS, is an online editor/manager for SHRM.

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