The Advisors' Blog

– Broc Romanek

Based on access to data supplied by Main Data Group, Steven Hall & Partners has a new study of incentive compensation programs, with highlights including:

1. Fixed vs. Variable Compensation
– CEO compensation is substantially incentive-based
– Target compensation is 86% variable and only 14% fixed

2. Short-Term Incentives
– Median annual incentive targets for CEOs are 104% of base salary, an increase of 3% compared to last year’s study
– Typical leverage provides the ability to earn half of the bonus at threshold performance levels and 200% for maximum achievement
– Earnings remains the predominant performance metric, utilized by 87% of the companies studied, with a median weighting equal to 50% of bonus opportunity
– While plans most commonly used three performance metrics, we note a significant increase (+15%) in companies using four or more metrics

3. Long-Term Incentives
– Annual grants of long-term incentive awards continue to be almost universal practice
– 96% of companies granted long-term incentive awards to the CEO
– Prevalence of performance-vested awards held steady as 67% of companies granted performance-vested awards
– Performance-vested awards comprised the largest portion of long-term compensation as measured by dollar value
– The most popular performance metrics continue to be earnings and stock price performance, typically measured using relative total shareholder return (TSR); TSR usage increased +5% in 2015
– 78% of companies utilize more than one vehicle in their long-term incentive program
– Restricted stock remains the most popular vehicle at 80% prevalence; usage increased +5% over last year
– Stock option/SAR usage (granted by 54% of companies) was flat