The Advisors' Blog

– Broc Romanek

Here’s the teaser for this Pay Governance memo:

The rise in both the prevalence and prominence of long-term performance plans has been one of the most significant trends in executive compensation over the past 15 years. At the time of the dot-com market collapse (March 2000 to October 2002) and the demise of several prominent U.S. companies (e.g., the Enron scandal revealed in October 2001), long-term performance plans were only used by a relatively small portion of large U.S. public companies.

Today, more than 80% of S&P 500 companies use a variety of LTI performance plans, including performance shares, performance units, performance-vested restricted stock and/or units, and long-term cash-based incentives. More striking than the growth in prevalence of long-term performance plans is the increased prominence of performance plans in the mix of LTIs provided by companies. Long-term performance plans now represent approximately 52% of CEO total LTI compensation opportunities.

The increased prevalence and prominence of long-term performance plans have come primarily at the expense of stock options. Corporate America began using stock options in executive pay packages in the 1950s, with use peaking during the late 1990s tech boom and bull market for stocks. Today, even though stock options are granted to 54% of S&P 500 CEOs, they typically represent only 18% of CEO total LTI award value.