Exec Comp Packages Workshopped

May 21, 2002 (PLANSPONSOR.com) - US companies are tinkering with their executive compensation plans in anticipation of the economic turnaround, finding ways to make attractive offers in the face of an equity market that makes equity incentives uninspiring, a survey finds.

According to Hewitt Associates, nearly half of the companies surveyed find that attracting and retaining key executives, though easier now than in the late 1990s, is still challenging.

The Hewitt study shows that nearly two-thirds of companies paid out executive bonuses below target this year, for 2001 performance. Of those,

  • 14% paid any bonus
  • 13% paid out between 1 and 49% of their targets
  • 38% of organizations awarded bonuses between 50% and 99% of their targets.

Meanwhile, 35% of companies had bonus payouts at or above 100% of target, significantly lower than in the last five years, when more than 50% of companies’ bonuses exceeded their targets.


According to the survey, many companies are taking a more cautious approach to their executive bonus plan designs this year. For instance,

  • 30% of the companies changed their performance measures
  • 11% increased their target award opportunities
  • 10% modified threshold levels of performance before any bonus will be paid.

Stock Dilution

Stock dilution is a major issue, Hewitt found, with more than 25% of the sample expecting to exceed a 2% run rate on 2002 stock option grants, and the majority of the remaining companies project a run rate of 1% to 2%.

Run rate is a measure of stock dilution, and is defined as options granted divided by common shares and options outstanding, plus remaining shares available to grant – the higher the run rate, the greater the dilution of stock.

In response to concerns about dilution:

  • 21% of companies have limited or are considering limiting stock option grant sizes
  • 16% have increased or plan to increase stock option award differentiation based on performance
  • 12% have capped or are considering a cap to annual share usage.

The sample comprised 176 major companies.