Changes to Executive Pay Programs Have Sharply Increased

March 17, 2009 ( - 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.

The 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, Watson Wyatt said in a press release.

According to the survey, the percentage of respondents that have frozen salaries has jumped to 55% from 21% in December. Approximately half (48%) of respondents said they plan to decrease this year’s bonus pool by an average of about 40%. In addition, 23% of respondents have added a clawback policy.

A third of respondents said they expect that their LTI grant dollar values will fall, with an average decline of 35%.

Other findings, according to the press release, include:

  • Only 40% of companies surveyed believe to a great extent (four or five on a five-point scale) that reductions in salary, bonus and/or LTIs will be later restored.
  • Almost four in 10 (38%) companies have changed the performance metrics for their annual incentive plan, and three in 10 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% plan a greater emphasis on time-vested restricted stock.

Almost four in 10 (37%) of the companies that Watson Wyatt found 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%) 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%), managing dilution or the run rate (32%) and poor company performance (23%).

The current regulation landscape is a concern for compensation committees. Approximately half of companies surveyed said they were moderately to significantly concerned about "say on pay" measures (56%), expanded Compensation Discussion and Analysis (CD&A) disclosures (50%), deferred compensation limits (46%) and excluding "excessive risk" from compensation programs (43%).

Despite this, more than 70% of companies surveyed have not added a formal risk assessment process, and 69% have not certified in their proxy that a risk assessment has been performed.

The Watson Wyatt survey was conducted during the first week of March and included responses from HR and compensation executives at 145 companies.

The survey report is available at .