Directors Believe Executive Pay Programs Need to Change, Watson Wyatt Survey Finds
06 May 2009 - 2:26AM
PR Newswire (US)
WASHINGTON, May 5 /PRNewswire-FirstCall/ -- A majority of directors
who serve on corporate boards believe that the executive pay
programs of U.S. companies need to change as a result of the
financial crisis, according to a new survey by Watson Wyatt, a
leading global consulting firm. Nearly two-thirds (63 percent) of
outside directors said they believe American companies should
modify their executive compensation programs to adapt to new
economic realities, according to the survey. Additionally, most
directors (68 percent) are not concerned or only slightly to
moderately concerned about the retention of high-performing
executives. Further reinforcing this point, 70 percent of directors
expect executive pay opportunity to decline over the next two
years. More than a third (34 percent) of directors said their
companies had already reduced salary, target bonus and/or long-term
incentive award levels. Six percent plan to make those changes in
the next six months and another 48 percent are considering making
them. Furthermore, these pay changes will not be temporary for a
significant number of companies. And, although underwater options
are at historically high levels, 58 percent of respondents whose
companies grant options do not think it is appropriate to take
action such as repricing or exchanging them for new shares. Watson
Wyatt's survey was conducted in March and April 2009 and includes
responses from 85 outside directors. "Shareholders and the general
public will support that directors are looking to change their
executive pay programs to reflect the economic crisis," said Ira
Kay, global director of executive compensation consulting at Watson
Wyatt. "We are confident that boards will continue to hold
management directly accountable for their company's performance."
Companies are beginning to address the issue of excessive risk in
executive compensation. Twenty-three percent of directors are
moderately to greatly concerned that legislation addressing
"excessive risk" will have an effect on their executive pay
programs. Roughly one quarter (24 percent) are concerned to the
same extent about expanded clawback coverage. However, the vast
majority has not yet made any changes around measuring or limiting
risk in their executive pay packages. Only 18 percent have added a
formal risk assessment process, 15 percent have curtailed stock
option grants and 10 percent have certified in their proxy
statement that a risk assessment has been performed. The survey
also found that directors do not expect legislation to have a
significant impact on executive pay for performance. A majority (54
percent) said legislation and public pressures would have little or
no effect on improving pay for performance. "Directors face an
increasingly difficult challenge against the backdrop of a very
tough economy and intense outside scrutiny. For incentive pay
programs to be effective, they must be motivational and reward
executives well for delivering strong performances. At the same
time, compensation programs must satisfy shareholders by
safeguarding against misaligned incentives, pay for failure and
excessive risk taking," said Andrew Goldstein, North American
co-leader of executive compensation consulting at Watson Wyatt.
"The onus is on directors and management to achieve that balance."
Other findings: -- Almost half (49 percent) of directors noted
their companies have already made or are planning to make changes
to their long-term incentive (LTI) plan vehicles. Among these
companies, 53 percent plan to put more emphasis on
performance-based shares, and 26 percent plan to put more emphasis
on performance-based cash plans. -- Thirty percent of directors
expect companies to change their performance metrics around annual
bonuses in the current fiscal year and 27 percent expect to change
their performance metrics around long-term performance plans. To
view the research brief, visit
http://www.watsonwyatt.com/BoardViewReport. About Watson Wyatt
Watson Wyatt (NYSE:WWNASDAQ:WW) is the trusted business partner to
the world's leading organizations on people and financial issues.
The firm's global services include: managing the cost and
effectiveness of employee benefit programs; developing attraction,
retention and reward strategies; advising pension plan sponsors and
other institutions on optimal investment strategies; providing
strategic and financial advice to insurance and financial services
companies; and delivering related technology, outsourcing and data
services. Watson Wyatt has 7,700 associates in 33 countries and is
located on the Web at http://www.watsonwyatt.com/. DATASOURCE:
Watson Wyatt CONTACT: Ed Emerman, +1-609-275-5162, , or Steve
Arnoff, +1-703-258-7634, , both for Watson Wyatt Web Site:
http://www.watsonwyatt.com/
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