December 13, 2022
FW Cook’s “Top 250 Report”
FW Cook has released its Annual “Top 250 Report” – which examines the long-term incentive practices & trends of the 250 largest companies in the S&P 500. This year’s report also looks at how incentives have changed over a three- and six-year lookback period. This excerpt lays out the key findings for metrics & payout ranges:
While annual incentive plan design varies among companies and industries, practices are converging towards a balanced approach that incentivizes profitable growth and achievement of key non-financial measures. Common design features include:
• Two or three financial measures (70% prevalence; up from 58% in 2016).
• A profit metric (93% prevalence; up from 92% in 2016) with a weighting of 40% or more and at least one other financial metric that aligns with a company’s short-term priorities.
– Revenue is the most common secondary financial metric (57% prevalence; up from 46% in 2016), followed by cash flow (29% prevalence; up from 25% in 2016).
• A non-financial component (78% prevalence; up from 73% in 2016), with the use of standalone strategic measures or team-wide scorecards (58% prevalence; up from 42% in 2016) surpassing individual performance measurement (43% prevalence; up from 38% in 2016).
– The increase in use of strategic measures since 2016 is primarily driven by the heightened focus on Environmental, Social, and Governance (ESG) objectives and the resulting addition of ESG measures in annual incentive plans (72% of Top 250 companies in FW Cook’s 2022 Top 250 ESG Report).
• Payout ranges from 0% or 50% of target for threshold performance to 200% of target for maximum performance.
– Liz Dunshee