According to the Towers Watson Executive Pay Flash Survey, the majority of companies plan to fund this year’s bonuses at or above target levels, reflecting strong operating results.
The survey found 61% expect their total shareholder return for 2011 to decline or remain flat. Meanwhile, the same number (61%) expect their annual bonus pools for 2011 to be as large or larger than those for 2010. Additionally, 58% expect to fund their annual incentive plans at or above target levels based on their companies’ year-to-date performance. Forty-eight percent of respondents also expect long-term incentive plans that are tied to explicit performance conditions to be funded at or above target levels based on year-to-date performance.
Other findings from the survey include:
• The percentage of compensation committees expected to exercise discretion to override their executive incentive plan formulas has declined sharply from 35% three years ago to only 13% this year.
• Most companies expect to keep the same incentive plan measures and designs for the next performance cycle.
• One in four companies are planning to change the design of their long-term incentive plans for 2012, with the vast majority of those increasing the use of performance-based restricted stock and restricted stock/unit grants.
“Given that many companies have seen strong financial results this year, it’s no surprise that the majority of companies will fund their incentive pools at or above target levels,” said Doug Friske, global head of executive compensation consulting at Towers Watson. “However, for companies that must submit their pay programs to a shareholder vote, the prospect of above-target incentive awards combined with shareholder losses could pose complications and communication challenges as they head into the 2012 proxy season.”
The Towers Watson Executive Pay Flash Survey was conducted online in the second half of October 2011 and is based on responses from 265 organizations in North America, primarily midsize and large publicly traded U.S. companies.