2016 Incentive Plan Practices: Aligning Pay with Performance

2016 Incentive Plan Practices: Aligning Executive Pay with Performance

May 24 2016

PDFBased on access to data supplied by Main Data Group, Steven Hall & Partners recently completed a study of incentive compensation programs at just under 900 companies with revenues between $1 and $5 billion in the United States utilizing data from 2015 proxy statements (covering fiscal year ends from December 31, 2014 through August 31, 2015).  Our study found that:

  • Fixed vs. Variable Compensation
    • CEO compensation is substantially incentive-based
      • Target compensation is 86% variable and only 14% fixed
  • Short-Term Incentives
    • Median annual incentive targets for CEOs are 104% of base salary, an increase of 3% compared to last year’s study
    • Typical leverage provides the ability to earn half of the bonus at threshold performance levels and 200% for maximum achievement
    • Earnings remains the predominant performance metric, utilized by 87% of the companies studied, with a median weighting equal to 50% of bonus opportunity
    • While plans most commonly used three performance metrics, we note a significant increase (+15%) in companies using four or more metrics
  • Long-Term Incentives
    • Annual grants of long-term incentive awards continue to be almost universal practice
      • 96% of companies granted long-term incentive awards to the CEO
    • Prevalence of performance-vested awards held steady as 67% of companies granted performance-vested awards
      • Performance-vested awards comprised the largest portion of long-term compensation as measured by dollar value
      • The most popular performance metrics continue to be earnings and stock price performance, typically measured using relative total shareholder return (TSR); TSR usage increased +5% in 2015
    • 78% of companies utilize more than one vehicle in their long-term incentive program
      • Restricted stock remains the most popular vehicle at 80% prevalence; usage increased +5% over last year
      • Stock option/SAR usage (granted by 54% of companies) was flat

PDF of Study: 2016 Incentive Plan Practices:_Aligning Executive Pay with Performance