Almost half of US companies, including many with strong shareholder backing on say-on-pay input, plan to strengthen the link between executive pay and performance before the 2013 proxy season, with a slight majority of them intending to focus on performance-based equity, according to a survey by global professional services adviser Towers Watson.
Some 45 percent of US companies surveyed plan to strengthen the link between pay and performance in the coming year, according to the report. At the same time, only about 60 percent have actually carried out studies linking performance and pay at their companies, the researchers find.
Among the companies that are strengthening the pay-to-performance link for the 2013 season, about 55 percent say they will do so using performance-based equity. Around 50 percent say they are making changes to the metrics they use to determine performance-based payouts.
Towers Watson says the changes planned far outstrip the demand for changes expressed by shareholders in the most recent say-on-pay votes. It notes that less than 2 percent of survey respondents didn’t win majority support from shareholders in their most recent votes.
‘While companies have generally received strong shareholder support during the first two years of say-on-pay voting, most are far from complacent as we head into year three,’ says Andy Goldstein, leader of Towers Watson’s executive compensation consulting practice. ‘Even companies that received overwhelming shareholder support in 2012 are considering fine-tuning how they pay executives, and we’re seeing the most activity among those receiving less than 90 percent say-on-pay support. That’s a very high standard.’
The study, based on a sampling of executive compensation professionals at 253 large and mid-sized US companies in September, also shows that about half engaged with shareholders on pay for performance in the past season. Just under a quarter (23 percent) of respondents say they plan to engage more with shareholders on the issue in the coming season.
The research further shows that, of the 60 percent of companies that conducted studies linking pay and performance for executives, 73 percent used total shareholder return as a measure, and most considered other measures related to the balance sheet. At 81 percent of the companies, pay for performance criteria were established by comparing company performance to a peer group established by the firm itself.
