Our Insights

Annual & Long-Term Incentive Program Design

Read about recent trends in annual and long-term incentive program design, including budgeting, selection of performance metrics, target setting, the role of discretion, vehicle mix, and the role of equity in talent retention.

Share repurchases: What influence on exec comp?

Corporate America has increasingly relied on share repurchases to fuel earnings per share (EPS) growth in recent years. A study by Reuters found that nearly 60% of nonfinancial, publicly traded companies have bought back shares in the last five years, and share repurchases and dividends exceeded capital spending in 2014. Read more

How Incentives for Long-Term Management Backfire

To hear long-term investors tell it, company executives have embraced short-term thinking like never before. Two obvious pieces of evidence: The use of earnings for share buybacks that cost more than they’re worth, and dividend increases that divert cash from long-term investment. Read more

A Compelling Alternative to Stock Options

Today, compensation committees seem to have fewer tools in their arsenal to directly incentivize a company’s stock price growth. Increasingly since 2007, stock options have been replaced by various performance-based vehicles. As a result, long-term incentive plans (LTIPs) may be paying for achievement of operational or financial performance goals while shareholders fail to benefit from a similar growth in share value. Read more

Pay for performance or pay for results?

For the last few decades, the focus of executive compensation has been to align pay with performance.Nearly every company includes “pay for performance” as a core principle of the executive compensation design, and compensation committees consider managing the pay for performance relationship as one of their primary governance responsibilities. But what exactly does “pay for performance” mean? For most companies, pay for performance has traditionally meant the following: identify key business metrics; set challenging but attainable performance objectives; and deliver pay for achieving those objectives. Read more

A Look Behind the Numbers

Can performance restricted stock units deliver a better payday for executives? Recent trends in the choice of long-term incentive vehicles have driven companies away from options to performance restricted stock units (PRSUs). This partly stems from ongoing pressure from proxy advisers and some institutional investors. In one study of S&P 1500 companies, the use of options in all companies declined from 77.2 percent in 2009 to 63.9 percent in 2013, while the use of performance-based equity rose from 45.5 percent in 2009 to 68.9 percent in 2013. A leading cause of this shift is that many organizations, including Institutional Shareholder Services (ISS) and Glass, Lewis & Co. LLC, consider PRSUs performance-based, unlike options. Read more

Goal Setting: Meeting Stakeholder Expectations in an Increasingly Dynamic and Complex World

The perennial challenge of setting meaningful, yet realistic, incentive-plan goals has become ever more difficult in an increasingly complex and rapidly changing business world. Companies now must also accommodate the growing importance of a range of stakeholders. Read more