October 2, 2024
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 examines trends in financial and non-financial metrics, goal setting practices, and actual payouts, comparing findings over 2-year and 5-year periods. Key findings include:
– Plan Design: Annual incentive plans typically incorporate a combination of non-financial and two to three financial measures, with profitability and revenue measures remaining the most prevalent. There is a small but growing trend of companies using four or more financial measures to create a more holistic evaluation of performance. The use of non-financial measures continues to be a significant component of annual incentive plans, with 79% of companies incorporating them in 2024.
– Target Goal-Setting: Most companies set more challenging target goals in 2023 relative to prior year actual results. At the median, the Top 250 companies set 2023 profit targets 4% above 2022 actual performance and revenue targets 5% above 2022 results. This is a slightly more conservative approach compared to prior reports reflecting potential caution amid market uncertainty.
– Threshold & Maximum Goals (Performance Goal Ranges): Median performance goal ranges for revenue and profit have remained stable since 2019, with profit metrics set at +/-10% of target and revenue metrics set at +/-5% of target. Cash flow performance goal ranges exhibited more variability, with threshold set at -18% and maximum set at +15% of target.
– Bonus Payouts: 2023 was a strong year for the Top 250 companies, with 7% growth in both revenue and operating income, alongside median TSR of +16%. The median CEO annual incentive payout was 127% of target, demonstrating general alignment with performance, although slightly below the 150% payout observed in 2021 when median TSR was 29%.
– Liz Dunshee