Watson Wyatt Worldwide found that more than two-thirds (68%) of the 75 large, publicly traded companies studied disclosed the actual goals on which they based rewards under their 2007 annual incentive plans, up from 54% that disclosed goals last year. Watson Wyatt also found that slightly more than half (56%) provided a detailed description of how total pay earned during 2007 tied to company performance, but only about a third (36%) provided an analysis of how well the company performed versus its industry peers. The SEC had requested companies provide this type of analysis in the proxies for 2008, the second year the SEC’s stepped-up proxy disclosure rules are in effect.
Fifty-seven percent included the goals for long-term incentive plans in their proxies, compared with 45% a year ago. According to Watson Wyatt, new Securities and Exchange Commission (SEC) rules request such information, unless providing it would result in competitive harm. Of those that did not disclose actual goals, only 19% stated affirmatively that disclosing them would result in competitive harm.
“With more companies disclosing their goals, it is easier to determine if pay programs are rewarding executives for maximizing shareholder value,” said Ira Kay, Global Director of Compensation Consulting at Watson Wyatt. “The SEC wants to give shareholders the ability to determine if goals are too easy or too hard and if executives are focused on the right things. Without disclosure of specific financial goals – for example, earnings per share growth of 10 percent – shareholders will have difficulty determining if their company follows its pay-for-performance philosophy.”
Some companies are taking steps, however, to reduce some of the less shareholder-friendly or non-core elements of compensation, such as executive pensions and severance. About one of 10 companies (11%) reported making changes to executive pensions – and all 24% of companies that made changes to their severance or change-in-control programs reduced the potential payments to executives.
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