Meridian Compensation Partners Survey Finds Companies Taking Additional Steps to Link Pay and Performance in 2013
LAKE FOREST, Ill.--(BUSINESS WIRE)--Meridian Compensation Partners, LLC 2013 Trends and Developments in Executive Compensation Survey found that three quarters of major companies have performed a pay-for-performance analysis in the past year. As the emphasis on pay for performance continues to increase, many companies are taking additional steps to evaluate the relationship between their pay programs and company performance. The survey consists of approximately 140 companies with median revenues of $3.9 billion and median market values of $5.6 billion.
Most companies (61%) reported 2013 annual incentive payouts (for 2012 performance) were above target; this is down slightly from 2012 when 68% of companies paid out above target. In light of the strong performance in 2012 and similar expectations for 2013, two-thirds of companies set 2013 performance goals higher than in 2012. Furthermore, a majority of companies that increased performance goals did so by more than 5%.
Three year trends suggest companies are focusing long-term incentive plans around 2 or 3 LTI vehicles, with performance-based awards making up a majority of the targeted value delivered (51%), on average. Meridian also found that 58% of companies use total shareholder return (TSR) in their long-term performance plans, up from 44% in 2011 and 50% in 2012. This is being driven by a desire to increase the alignment between LTI payouts and shareholder results and relative performance against peers.
According to Patrick Powers, a consultant at Meridian, “The growing prevalence of TSR as the primary metric in long-term performance plans clearly demonstrates a trend of company’s efforts to tie executive pay more closely with shareholder results. We expect to see continued use of relative TSR metrics in the future, particularly at companies receiving scrutiny over their pay-for-performance alignment.”
With regards to Say on Pay outcome expectations, most companies (93%) expect to receive shareholder support above the critical level (70%) in 2013. Additionally, 73% of companies surveyed made an effort to better understand ISS’s likely pay-for-performance test outcomes by either having an outside compensation consultant or others replicate these tests.
About Meridian Compensation Partners
With over fifty associates in eleven offices in the United States and Canada, Meridian’s executive compensation consultants provide independent, trusted counsel to Boards and Management at hundreds of large companies in North America. We consult on executive compensation and its design, amounts and governance. Visit us at www.meridiancp.com.