Incentive Plan Practices: Aligning Executive Pay with Performance

Based on data supplied by Main Data Group, Steven Hall & Partners recently completed a study of incentive compensation programs at over 800 companies with revenues between $1 and $5 billion in the United States utilizing data from 2014 proxy statements (covering fiscal year ends from December 31, 2013 through September 30, 2014). Our study found that:

• Fixed vs. Variable Compensation
  • CEO compensation is overwhelmingly incentive-based
    • Target compensation is 85% variable and only 15% fixed

• Short-Term Incentives
  • Median annual incentive targets for CEOs equaled approximately 100% of base salary
    • Typical leverage provides the ability to earn half of the bonus at threshold performance levels and 200% for maximum achievement
  • 87% of the companies studied used at least one metric related to earnings
    • Median weight of earnings metric equaled 50%
  • Plans most commonly used three performance metrics

• Long-Term Incentives
  • Annual grants of long-term incentive awards are almost universal practice
    • 95% of companies granted long-term incentive awards to the CEO
  • 67% of companies granted performance-vested awards
    • Performance-vested awards comprised the largest portion of long-term compensation as measured by dollar value
    • The two most popular performance metrics are earnings and stock price performance, primarily measured using relative total shareholder return (TSR)
  • While the trend towards performance-vested awards continues unabated, use of time-vested awards remains widespread. Over three-quarters of the study companies utilize more than one vehicle in their long-term incentive program.
    • 75% of companies granted time-vested restricted stock
    • 54% of companies granted stock options/SARs

Contact Information
If you would like to obtain the detailed results of this study for your specific industry, please contact Joe Sorrentino (212-488-5400; [email protected]).

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