Companies Making Extensive Changes to Executive Pay, Watson Wyatt Survey Finds
March 17 2009 - 10:32AM
PR Newswire (US)
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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