The Advisors' Blog

Clearbridge Compensation Group is out with its “Long-Term Incentive Plan Report” for the “Clearbridge 200” – which consists of 100 mid-cap companies in the S&P MidCap 400 Index and 100 large-cap companies in the S&P 500 Index. The 18-page report looks at design changes from 2020 to 2023, including practices around:

– LTI Vehicles

– Time-Vested Award Vesting Period & Schedule

– Performance-Vested Award Design

– Relative TSR Goal Setting

A big question in the wake of the new Dodd-Frank clawback rules is whether companies will shift away from tying most incentives to financial measures and stock price. For the period covered by this report, almost all companies used these types of metrics in their incentive plans, with relative TSR being most prevalent. Here’s an excerpt (with more detail in the chart on pg. 8):

Across both mid-cap and large-cap companies, stock price/TSR measures, followed by earnings measures (e.g., EBITDA), are most commonly used to measure long-term performance (either as a weighted measure or as a modifier). In addition to increasing shareholder alignment, stock price/TSR goals are generally easier to establish in uncertain times compared to financial goals.

When companies use a stock price/TSR measure, the overwhelming majority use relative TSR. In 2023, 55% of mid-cap and 70% of large-cap companies used relative TSR as a measure.

Speaking of the Dodd-Frank clawback rules, don’t miss our webcast next Thursday, November 16th, at 2pm ET – “More on Clawbacks: Action Items and Implementation Considerations” – in which Compensia’s Mark Borges, Ropes & Gray’s Renata Ferrari, Gibson Dunn’s Ron Mueller, and Davis Polk’s Kyoko Takahashi Lin continue their conversation from our “Proxy Disclosure & 20th Annual Executive Compensation Conference” on what we all need to be doing to implement these newly required policies.

– Liz Dunshee