Cuts extended to bonuses and long-term incentive grants WASHINGTON, March 17 /PRNewswire-FirstCall/ -- The number of companies that froze salaries and added clawback policies to their executive pay programs has jumped sharply during the past three months, according to a new survey by Watson Wyatt, a leading global consulting firm. This update to a December 2008 survey also found that many companies plan to slash funding for annual bonuses and reduce the value of long-term incentive (LTI) awards. "The recession has shone a light on executive pay, causing many companies to re-evaluate the long-term implications of their executive pay policies," said Andrew Goldstein, North American co-leader of executive compensation consulting at Watson Wyatt. "Although boards are under pressure to make changes, it's still not clear whether the changes they have made have been aggressive enough to placate shareholders." According to the survey, the percentage of respondents that have frozen salaries has jumped to 55 percent from 21 percent in December. Approximately half (48 percent) of respondents plan to decrease this year's bonus pool by an average of about 40 percent. Additionally, 23 percent of respondents have added a clawback policy. A third (33 percent) of respondents also expect that their LTI grant dollar values will fall, with an average decline of 35 percent. The Watson Wyatt survey was conducted during the first week of March and included responses from HR and compensation executives at 145 companies. Companies are making executive compensation changes in a variety of ways Have already made Expect to make Considering change change in next 12 a change months March December March December March December 09 08 09 08 09 08 Base Salary/Merit Increases Freeze salaries 55% 21% 3% 20% 8% 3% Decrease planned merit increases 48% 30% 5% 35% 11% 9% Delay planned merit increases 23% 13% 3% 17% 7% 3% Reduce salaries 10% 2% 3% 6% 10% 0% Annual Incentives Implement a discretionary plan 10% n/a 0% n/a 10% n/a Reduce target bonus opportunities 9% 4% 1% 4% 9% 8% Reduce bonus plan eligibility/ participation 7% 3% 1% 3% 5% 5% Decrease maximum award opportunity 7% n/a 1% n/a 6% n/a Long-Term Incentives Reduce LTI plan eligibility or participation 12% 4% 4% 12% 8% 2% Decrease maximum award opportunity for performance-based awards 11% n/a 3% n/a 8% n/a Re-price, exchange or surrender underwater stock options 0% 1% 0% 13% 16% 1% Require equity grants to be held to retirement 0% 0% 0% 2% 3% 0% Other Pay Programs Add clawback or recoupment program/policy 23% 13% 1% 11% 13% 1% Cap change in control benefits to 3X the safe harbor limit 17% n/a 0% n/a 3% n/a Analyze actual "realized" pay in relation to target compensation granted 16% n/a 4% n/a 13% n/a Make special retention bonuses (cash or equity) 13% 9% 1% 21% 16% 3% Almost four in 10 (37 percent) of the companies that have already reduced or plan to reduce long-term incentive grants said they did so because it was the "right thing to do in response to shareholder value." Another third (34 percent) cited declining competitive pressures from the market, while slightly lower percentages cited internal reasons such as a lack of shares available in the plan (29 percent), managing dilution or the run rate (32 percent) and poor company performance (23 percent). Another concern for compensation committees is the current regulation landscape. Approximately half of companies surveyed said that they were moderately to significantly concerned about so-called "say on pay" measures (56 percent), expanded Compensation Discussion and Analysis (CD&A) disclosures (50 percent), deferred compensation limits (46 percent) and excluding "excessive risk" from compensation programs (43 percent). Despite this, more than 70 percent of companies surveyed have not added a formal risk assessment process, and 69 percent have not certified in their proxy that a risk assessment has been performed. "TARP sections relating to excessive risk are expected to put pressure on companies outside the financial industry as well," said Ira Kay, global director of executive compensation consulting at Watson Wyatt. "For that reason, it is essential for HR and compensation executives to determine ways to assess risk early and incorporate these into their executive pay programs." Other findings include: -- Only 40 percent of companies surveyed believe to a great extent (4 or 5 on a five-point scale) that reductions in salary, bonus and/or LTIs will be later restored. -- Almost four in 10 (38 percent) companies have changed the performance metrics for their annual incentive plan, and three in 10 (30 percent) have changed the performance metrics in their LTI plans. -- Thirty-six percent have already changed or plan to change the type of LTI used: of this group, 43 percent plan a greater emphasis on time-vested restricted stock. The survey report is available at http://www.watsonwyatt.com/ExecCompUpdate. About Watson Wyatt Worldwide Watson Wyatt (NYSE:WWNASDAQ:WW) is the trusted business partner to the world's leading organizations on people and financial issues. The firm's global services include: managing the cost and effectiveness of employee benefit programs; developing attraction, retention and reward strategies; advising pension plan sponsors and other institutions on optimal investment strategies; providing strategic and financial advice to insurance and financial services companies; and delivering related technology, outsourcing and data services. Watson Wyatt has 7,700 associates in 32 countries and is located on the Web at http://www.watsonwyatt.com/. DATASOURCE: Watson Wyatt CONTACT: Ed Emerman, +1-609-275-5162, for Watson Wyatt; or Steve Arnoff of Watson Wyatt, +1-703-258-7634, Web Site: http://www.watsonwyatt.com/

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