Watson Wyatt Finds Strong Pay and Performance Link

February 20, 2008 (PLANSPONSOR.com) - Chief executive officers whose companies financially outperformed their peers over a three-year period received long-term incentive award payouts that were more than 50% above their target, according to an analysis by Watson Wyatt Worldwide.

In a press release, Watson Wyatt said specifically its analysis revealed that CEOs at high-performing companies – those with total returns to shareholders (TRS) above the median from 2004 to 2006 – were rewarded with long-term incentive payouts that were 156% of their targets. In contrast, Watson Wyatt found that CEOs at low-performing companies received median payouts of just 71% of their targets. Overall, CEOs earned median payouts slightly above target at 114%.

The analysis also found that high-performing CEOs, as measured by one-year earnings per share (EPS) growth, received median annual incentive payouts that were 11% above target, the release said. However, CEOs at low-performing companies did not suffer any decrease in their target bonus payouts.

“We believe that for the most part, strong company performance led to above target awards. While there may be a few cases of companies setting goals that were too easy to achieve, it’s clear that rewards play a crucial part in driving most CEOs to excel.” said Ira Kay, global director of compensation consulting at Watson Wyatt, in the release.

The Watson Wyatt analysis was based on CEOs at 177 companies who remained in their jobs for the three-year period and who received long-term performance share or cash awards. The analysis did not include any stock options or restricted stock awards that the CEOs may have also received.