Executive Rewards Less Influenced by Economy

April 21, 2014 (PLANSPONSOR.com) – The economy’s influence on the adjustments being made to executive reward programs is decreasing this year.

The results of Mercer’s Executive Rewards 2013 Year-End Survey indicate the impact of proxy advisory firms is slightly increasing as more organizations try to align programs with advisers’ guidelines. According to the survey results, changes to annual and long-term incentive programs, use of special retention grants, and grant values have increased in 2014 as a result of proxy advisers’ guidelines.

With regard to plan design, the survey results show a continued shift away from stock options relative to the increased use of performance awards in delivering long-term incentives to executives. Few organizations are making changes to current stock option plans (4% of survey respondents are increasing use, while 4% are decreasing use).

More significantly, 10% of organizations are planning to increase the use of performance shares in 2014, and 5% are increasing use of restricted shares.

“The influence of shareholder regulatory groups and public scrutiny is causing many companies to coalesce around similar types of compensation programs, yet similarity in plans may not address unique business priorities, talent requirements or the complex environment,” says Gregg Passin, senior partner with Mercer. “Finding that delicate balance between managing executive talent as both a risk and a business driver will be a competitive advantage.”

Corporate boards of directors are expanding the range of executive talent management issues on which they focus. The survey finds specific areas of increasing focus by boards are succession planning (69% in 2014 vs. 53% in 2013), executive candidate evaluation (69% in 2014 vs. 58% in 2013), leadership development (40% in 2014 vs. 28% in 2013) and work force metrics (33% in 2014 vs. 24% in 2013).

As result of this broadening of focus, some companies are rebranding their compensation committees as either human resource committees, or compensation and leadership development committees.

“This larger, more diverse portfolio of responsibilities means that boards recognize the critical challenges facing global organizations today,” says David Cross, partner with Mercer, based in New York. “These challenges include the shortage of leaders with expertise to run complex organizations, the intense competition for executive talent around the world, the surge in the cost of attraction and retention, and the outdated or frail succession plans that can leave organizations vulnerable.”

According to the survey results, this broader focus comes as the executive compensation landscape becomes more complex. Increased globalization, industry consolidation, changing technology and an aging work force are all increasing risks, making decisions around business issues more difficult and heightening the importance of the board’s oversight function. It is also placing greater emphasis on board composition given the value that can be added by board members with strategically critical skills and experience.

“It is clear that companies are going through a transition right now,” says Cross. “Strategic actions like aligning programs with global practices, integrating executive programs with broader work force management issues, assessing all elements of compensation, and applying metrics to identify objective insights about organizational threats and opportunities can help companies be better prepared for the future.”

The survey was conducted in November 2013, and includes responses from more than 215 employers across 20 industry sectors throughout the United States and Canada. A copy of the survey report can be requested here.