WASHINGTON, May 5 /PRNewswire-FirstCall/ -- A majority of directors who serve on corporate boards believe that the executive pay programs of U.S. companies need to change as a result of the financial crisis, according to a new survey by Watson Wyatt, a leading global consulting firm. Nearly two-thirds (63 percent) of outside directors said they believe American companies should modify their executive compensation programs to adapt to new economic realities, according to the survey. Additionally, most directors (68 percent) are not concerned or only slightly to moderately concerned about the retention of high-performing executives. Further reinforcing this point, 70 percent of directors expect executive pay opportunity to decline over the next two years. More than a third (34 percent) of directors said their companies had already reduced salary, target bonus and/or long-term incentive award levels. Six percent plan to make those changes in the next six months and another 48 percent are considering making them. Furthermore, these pay changes will not be temporary for a significant number of companies. And, although underwater options are at historically high levels, 58 percent of respondents whose companies grant options do not think it is appropriate to take action such as repricing or exchanging them for new shares. Watson Wyatt's survey was conducted in March and April 2009 and includes responses from 85 outside directors. "Shareholders and the general public will support that directors are looking to change their executive pay programs to reflect the economic crisis," said Ira Kay, global director of executive compensation consulting at Watson Wyatt. "We are confident that boards will continue to hold management directly accountable for their company's performance." Companies are beginning to address the issue of excessive risk in executive compensation. Twenty-three percent of directors are moderately to greatly concerned that legislation addressing "excessive risk" will have an effect on their executive pay programs. Roughly one quarter (24 percent) are concerned to the same extent about expanded clawback coverage. However, the vast majority has not yet made any changes around measuring or limiting risk in their executive pay packages. Only 18 percent have added a formal risk assessment process, 15 percent have curtailed stock option grants and 10 percent have certified in their proxy statement that a risk assessment has been performed. The survey also found that directors do not expect legislation to have a significant impact on executive pay for performance. A majority (54 percent) said legislation and public pressures would have little or no effect on improving pay for performance. "Directors face an increasingly difficult challenge against the backdrop of a very tough economy and intense outside scrutiny. For incentive pay programs to be effective, they must be motivational and reward executives well for delivering strong performances. At the same time, compensation programs must satisfy shareholders by safeguarding against misaligned incentives, pay for failure and excessive risk taking," said Andrew Goldstein, North American co-leader of executive compensation consulting at Watson Wyatt. "The onus is on directors and management to achieve that balance." Other findings: -- Almost half (49 percent) of directors noted their companies have already made or are planning to make changes to their long-term incentive (LTI) plan vehicles. Among these companies, 53 percent plan to put more emphasis on performance-based shares, and 26 percent plan to put more emphasis on performance-based cash plans. -- Thirty percent of directors expect companies to change their performance metrics around annual bonuses in the current fiscal year and 27 percent expect to change their performance metrics around long-term performance plans. To view the research brief, visit http://www.watsonwyatt.com/BoardViewReport. About Watson Wyatt 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 33 countries and is located on the Web at http://www.watsonwyatt.com/. DATASOURCE: Watson Wyatt CONTACT: Ed Emerman, +1-609-275-5162, , or Steve Arnoff, +1-703-258-7634, , both for Watson Wyatt Web Site: http://www.watsonwyatt.com/

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