October 23, 2018
Relative TSR: How’s Your Plan Compare?
– Liz Dunshee
Relative total shareholder return is still the most popular performance metric for long-term awards. This Exequity memo says it’s used in way or another by more than half of companies. In this article, Willis Towers Watson benchmarks specific “Relative TSR” provisions – so you can see how your plan compares. Here are 10 takeaways (check out the article for visuals & more detail):
1. Threshold performance: most commonly set at the 25th percentile – but 30% of companies use a higher threshold
2. Threshold payout: most commonly set at 50% of target
3. Target performance levels & vesting: almost always set at 50th percentile performance with target vesting at 100%
4. Maximum performance level: most commonly the 75th percentile – but there are plenty of plans above that
5. Maximum vesting: two-thirds of companies use 200% and a quarter of companies use 150%
6. Impact of absolute TSR: 25% of companies cap vesting if absolute TSR is negative or below target, even if relative performance is above target
7. Overall payout caps: used by only 4% of surveyed companies
8. Stock price averaging mechanism: used by 85% of plans – typically 20-30 trading days
9. Size of peer group: typically 10-25 companies
10. Dividend equivalents: more than half of surveyed companies offer dividend protection during the performance period – paid at the end based on vesting outcome