“Compensation Planning: Looking Ahead to Executive
Pay Practices in 2010,” a new report by independent compensation
consultancy Pearl Meyer & Partners, found that even companies who believe
they are outperforming their peers project only modest salary increases. A
press release said survey respondents also indicate they are taking a cautious
approach to both the design and payout levels of short-term and long-term
In terms of 2010 executive pay decisions, there were
clear differences between those expecting their performance to be “above
peers” for 2009 and those expecting results “lower than peers,”
according to the announcement. Among stronger performers, 53% anticipate base
salary increases above 3% (compared to 32% of lower performers), 86% expect to
receive a bonus payouts for fiscal 2009 performance (compared to 65% of lower
performers), and 40% expect an above-target payout (compared to 31% of the
Nearly 64% of respondents froze or trimmed executive base
salaries in 2009, and more than 20% of respondents expect to freeze salaries in
2010. Among companies projecting strong performance through the end of this
fiscal year, nearly 90% say they will limit salary growth in 2010 to 4% or
In total, nearly one-quarter of respondents do not plan
any annual incentive payouts in 2009, and the majority of those making payouts
expect award levels to be below target. Twenty-two percent of respondents
changed their annual performance metrics in 2009 (e.g., from EPS to cash flow)
and 16% widened the range of performance eligible for payouts.
For 2010, 39% of respondents expect to raise the bar on
performance goals and 28% plan to switch to relative performance metrics (where
performance is measured against peer firms or industry indices).
About one-third of respondents to Pearl Meyer &
Partners' executive compensation survey expect to increase the number of shares
in long-term incentive (LTI) grants to executives in fiscal 2009, although,
depending on the timing of the awards, grant values may be down relative to
2008 due to lower share prices.
Companies also are contemplating LTI modifications heading into 2010 to promote a longer term performance perspective, as the survey found:
- 10% have implemented new executive stock ownership guidelines and 4% increased existing requirements.
- 14% have contemplated adding new "hold until retirement" and 7% considered new "hold past retirement" provisions for equity grants to executives, although very few actually implemented these plans in 2009.
- 4% increased the length of vesting (e.g., from 3 years to 4 years) for stock grants, and another 3% anticipate implementing such changes in 2010.
While the vast majority of respondents did not revise
their arrangements for payments to executives upon termination or
change-in-control, there is a clear trend towards decreased benefits in this
area, according to the press release. Eight percent of respondents in the last
year decreased gross-up provisions to executives, which cover the taxes
triggered by "parachute" payments following a change-in-control.
Finally, the survey found companies migrating away from executive
perquisites such as:
- Personal use of corporate aircraft: 13% reduced in 2009 and about 3% are contemplating a decrease in 2010.
- Car allowance: 16% reduced in 2009 and about 9% are considering doing so in 2010.
- Reimbursements for financial planning services: 12% reduced in 2009 and more than 7% are considering a reduction in 2010.
Survey participants included 395 organizations from the
Fortune 50 to emerging high-growth organizations, of which nearly
three-quarters are publicly traded and 20% are closely or privately held, with
tax-exempt or governance-charted organizations accounting for the remainder.
Full survey results are at www.pearlmeyer.com/execcompplanning.