Companies Focused on Aligning Exec Performance with Pay

January 19, 2011 ( - In response to the ongoing legislative and regulatory demands regarding executive compensation, organizations are focusing efforts on measuring performance and aligning it with pay, according to a new survey by Mercer.

Nearly two-thirds of companies are introducing new financial performance measures in their annual incentive programs.  

According to a press release, 65% of organizations have introduced in 2010 or plan to introduce in 2011 new financial performance measures in their annual incentive programs. Half of companies have introduced in 2010 or are considering adding in 2011 new non-financial metrics in their annual incentive plans.  

“As companies look for the right metrics to measure performance and align it with pay, they are taking a broader view of performance and success beyond hard financial numbers,” said Josh Wilson, a partner with Mercer’s Rewards Consulting business, in the press release.  

Reinforcing this notion of uncertainty that many organizations are facing, more than 35% of companies will use some level of discretion to determine funding for 2010 incentive payouts. In addition, 13% of companies indicate that they will likely see increased discretion in 2011 and beyond.  

Nearly 60% of companies expect 2010 annual incentive plans to pay out at or above target levels. Only 7% of companies report that they will not pay out anything for the 2010 plan year.  

Long-term incentive (LTI) grant levels continue to show signs of stabilization. Mercer’s survey shows that more than two-thirds (68%) of organizations made actual LTI grants in 2010 that were consistent with the value of target levels set in 2009. In addition, more than 50% of organizations plan to maintain 2011 LTI grant values relative to 2010, while just more than one-quarter (26%) of organizations are still finalizing their plans to adjust 2011 LTI grant levels.  

In response to continued scrutiny by governance advocates, regulators and legislators, companies are “de-risking” their LTI programs and enhancing pay-for-performance relationships. For both executives and non-executives, the most anticipated changes by organizations to LTI programs for 2011 are a decrease in the use of stock options and an increase in the use of service-based restricted stock units (RSUs) and performance share/units. In addition, organizations are considering increasing the use of performance to differentiate grant sizes.


According to Mercer’s survey, U.S. companies are continuing to take a “wait and see” approach regarding disclosure changes due to the say-on-pay provision in response to the Dodd-Frank Act. Approximately 50% of organizations indicate they are uncertain as to whether they will make any disclosure changes as a result of the say-on-pay rules, while most of the remaining companies plan to make minimal changes.   

Companies are split on how frequently they expect their programs to be put to a say-on-pay shareholder vote. Half of companies surveyed are expecting to hold annual say-on-pay votes, 42% expect to hold the vote every three years, and 8% are expecting bi-annual votes.  

Mercer’s Executive Compensation and Performance 2011 survey, conducted in November 2010,includes responses from more than 260 employers across the U.S. and Canada.