Many U.S. Companies Performed Executive Pay-for-Performance Analyses but Did Not Disclose in 2014 Proxies, Towers Watson Surv...
31 October 2014 - 12:05AM
Business Wire
Six in 10 U.S. public companies have conducted analyses to
assess how closely their executive pay levels align with company
performance. However, nearly two-thirds of those companies did not
disclose the results of those analyses in their 2014 proxy
statements, mostly because they are awaiting soon-to-be-released
pay-for-performance disclosure guidance from the Securities and
Exchange Commission (SEC), according to a new survey by global
professional services company Towers Watson (NYSE, NASDAQ: TW).
The Towers Watson survey found that 60% of the 104 U.S.
companies polled conducted a pay-for-performance analysis that
compares both the company’s financial performance and pay
positioning with those of its peers in the marketplace. Among those
companies, nearly two-thirds (63%) did not disclose that they
conducted an analysis or the results of the analysis in their 2014
proxies. Thirty percent of respondents disclosed the findings of
the analysis, while the remaining 7% told shareholders they
performed the analysis but did not reveal the details. In a similar
survey two years ago, 44% of companies did not tell shareholders
that they performed a pay-for-performance analysis.
When asked why they did not disclose the pay-for-performance
analysis, three-fourths of respondents (76%) said they were waiting
for the SEC disclosure rules to be issued, while one-third also
said they were concerned about setting a precedent that will
require similar disclosure in the future. About two in 10
respondents said the analysis did not yield incrementally valuable
information to shareholders.
“The survey confirms that leading companies are paying close
attention to pay-for-performance alignment, and are conducting
comprehensive analyses using multiple definitions of pay and
performance to better understand how their executive pay programs
are working,” said Steve Kline, leader of Towers Watson’s Executive
Compensation consulting practice in the eastern central U.S.
Interestingly, a vast majority of respondents analyze
pay-for-performance alignment in ways that may be at odds with what
the SEC may require. For example, among companies that conducted a
pay-for-performance analysis, nearly all (96%) compared their
performance to a company-defined peer group. Additionally, the
majority of respondents (79%) used a three-year period to measure
performance. And more than half (60%) use a definition of
compensation other than that disclosed in the Summary Compensation
Table, as required by the SEC.
“What’s more, about half the surveyed companies analyzed pay for
performance for all their named executive officers, rather than
just the CEO,” noted Kline, who leads Towers Watson’s
pay-for-performance analytics team. “This additional effort shows
that many companies are being thoughtful and consider how programs
cascade below the CEO.”
Companies continued to make changes to their executive pay
programs to further strengthen the link between pay and
performance, the survey noted. More than four in 10 (43%) changed
their peer comparison group, while a slightly lower percentage
(40%) changed the performance measures used to determine incentive
payouts. Slightly more than a quarter of the respondents used more
demanding performance goals and changed the equity pay mix.
“Clearly, most companies are making an ongoing effort to
strengthen the calibration of their performance goals and metrics,”
said Andrew Goldstein, leader of Towers Watson’s Executive
Compensation consulting practice in the central U.S. “With say on
pay and increasing shareholder activism, pay-for-performance
analytics are taking hold in the market as companies are more
determined than ever to get pay for performance right.”
Other findings from the Towers Watson survey include:
- While total shareholder return (TSR) is
the most common measure of performance that companies analyze,
cited by 84% of the respondents, most assessed their performance
using both TSR and a measure of operating financial
performance.
- More than half (54%) of the respondents
use Summary Compensation Table pay in their pay-for-performance
analyses while 44% also used some form of realizable pay, which
considers the value of awards granted in prior years. This was up
from less than a quarter (23%) using realizable pay in a similar
survey Towers Watson conducted in 2012.
About the Analysis
The Towers Watson survey was conducted in September and October
2014 and is based on responses from executive compensation
executives and professionals at 104 large and midsize U.S. publicly
traded companies.
About Towers Watson
Towers Watson (NYSE, NASDAQ: TW) is a leading global
professional services company that helps organizations improve
performance through effective people, risk and financial
management. With 15,000 associates around the world, the company
offers consulting, technology and solutions in the areas of
benefits, talent management, rewards, and risk and capital
management. Learn more at towerswatson.com.
For Towers Watson:Binoli Savani,
+1-703-258-7648binoli.savani@towerswatson.comorEd Emerman,
+1-609-275-5162eemerman@eaglepr.com
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