April 20, 2023
Trends in Executive LTIP Compensation
Compensation committees have been struggling to set appropriate performance hurdles, especially for long-term awards, in these challenging markets. Equilar recently released a publication (available for download) analyzing trends in plan design, and—not surprisingly—long-time favorite, relative TSR, is only increasing in popularity as a performance metric. Here is Equilar’s summary of their key findings:
Relative TSR reigns supreme. The use of the metric grew in prevalence among Equilar 500 CEO LTIPs by nearly 13 percentage points from 52.8% in 2017 to 65.7% in 2021.
Return on capital loses momentum. ROC was the only Equilar 500 NEO performance metric to decrease in prevalence in 2021, declining from 40.1% in 2020 to 39% in 2021.
Three is the magic number. Three-year performance periods are by far the most common time horizon set for Equilar 500 executive LTIPs, increasing from 86.7% in 2017 to 90.6% in 2021.
CEO LTIPs call for higher performance ranges. Award payouts for Equilar 500 CEO LTIPs were most commonly triggered when performance hit 80%, and capped when performance hit 120% of target, with 84 of the 119 metrics falling within this range.
Max payouts are most commonly double the target. A maximum payout range of 200% the target was the most prevalent across the Equilar 100, with 88 metrics including that parameter as the high mark for CEO LTIP performance awards in 2021.
– Meredith Ervine