December 12, 2018
TSR Demise: No Longer the Primary “Pay Performance” Measure?
– Broc Romanek
This memo by Meridian Compensation Partners lays out how TSR has fallen on hard times. Here’s the intro:
During the past decade, the use of total shareholder return (TSR) has risen rapidly in prevalence as a performance metric in executive long-term incentive plans. Many compensation committees believed this was a direct way to align executive pay and performance. But is it? A notable number of large-cap companies are now not so sure.
Meridian tracked the use of TSR since 2011 via an annual survey and recently published this year’s findings in 2018 Trends and Developments in Executive Compensation. The prevalence of TSR increased annually from 39 percent in 2011 to 63 percent in 2017. Then, in 2018, there was a reversal: only 53 percent of survey participants used TSR. Moreover, there was a decline in using TSR as the sole performance metric (39%, down from 48%), an increase in coupling TSR with an earnings or return measure, and an uptick in those now using TSR just as a modifier and not a baseline measure.