January 4, 2022
FW Cook’s “Top 250 Report”
FW Cook has released its 49th Annual “Top 250 Report” – which examines the long-term incentive practices & trends of the 250 largest companies in the S&P 500. This excerpt lays out the key findings:
• Long-term incentive mix continues to be strongly oriented towards performance plans; on average, performance awards represent 58% of total long-term incentives.
• Total Shareholder Return continues to increase in prevalence – now used by 69% of companies vs. 56% in 2016 – and remains the most common performance metric among the Top 250 companies, with 95% of companies that use it measuring it on a relative basis (up from 86% in 2016).
• Beyond TSR, an increased number of companies evaluate financial metrics on a relative basis rather than on an absolute basis due to market volatility and to avoid the need for multi-year goal setting; more companies migrated towards use of broad or industry-relevant indices for comparisons to enhance sample size and reduce impact of volatility/M&A activity associated with a smaller sample size.
• Median threshold and maximum performance goals remain relatively constant from 2019, even with individual companies setting broader performance ranges in response to the COVID-19 pandemic. Based on available disclosure of FY21 goals, there is some early indication of companies setting wider performance ranges.
• An increasing number of companies measuring relative TSR performance set targets above median (29% in 2021 vs. 23% in 2019), which is likely in response to proxy advisory firms’ view that target earnout should require above-median performance.
– Liz Dunshee