November 23, 2020
Large-Cap Annual & Long-Term Incentive Comp Trends
– Lynn Jokela
ClearBridge Compensation Group recently came out with its report reviewing annual and long-term incentive plan trend data for large-cap companies. The report reviews incentive plan design trends among 100 S&P 500 companies over the last 10 years and includes data on performance metrics, vesting periods, award mix, etc. Here are some high-level findings:
Annual Incentive Plans:
– Almost all are formulaic, shifting away from discretionary plans for making bonus determinations
– Increased prevalence of companies that use three or more performance measures – 64% in 2020, up from 55% in 2010
– Use of EPS is the most common performance measure while use of revenue and non-financial measures have risen the most – up 15% and 7% from 2010 respectively
Long-Term Incentive Plans:
– Use of time-vested stock options as part of the mix has decreased significantly since 2010 – 64% in 2010 compared to 42% in 2020
– Most time-vested restricted stock/units and time-vested stock options/SARs vest ratably over the vesting period, a minority of companies use cliff vesting
– In 2020, 74% of companies that granted performance-vested long-term incentives used more than one performance measure – up from just 43% of companies in 2010
– Use of stock price/TSR as performance measures are the most prevalent and prevalence has increased significantly – 68% in 2020, up from 35% in 2010
– Of companies granting performance-based incentive comp, in 2020, 24% used a stock price/TSR modifier – one such example being a relative TSR cap (limits the payout of a performance award by establishing a payout cap if certain stock price/TSR goals are not achieved relative to a comparator group)
– In 2020, the majority of companies have included at least one absolute and one relative performance metric – this compares to 2010 when companies were more likely to measure performance solely on an absolute basis