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.

Checklist for Total Shareholder Return Incentive Plans

Does your company’s total shareholder return align with its business goals? The "Checklist for Incentive Plans Total Shareholder Return," by Mark Emanuel, offers a list of common critiques of relative TSR plans. Download the full report now! Read more

TSR Can be a Flawed Incentive Measure

The most effective executive compensation programs today strike the balance across key stakeholders — boards of directors, management teams, and shareholders. For many companies, performance-based equity has become the principal component of executive pay. Roughly 65% of large U.S. companies grant performance-based equity today and half of those use relative total shareholder return (TSR) as a performance measure. At first blush, relative TSR has strong conceptual appeal — executives earn grants only when they create more shareholder value than other companies. Upon deeper review, however, relative TSR has flaws as an incentive measure. Read more

How to Set Threshold and Maximum Payouts That Are Tailor-Made For Your Company

Compensation committees sometimes feel challenged by the task of setting targets for annual goals. Not only do they have to address the upside potential and downside risk in the company’s business plan, but also other factors that include external headwinds and tailwinds associated with macroeconomic factors, competitive opportunities and threats, technological disruptions, and regulatory changes. That said, the task of setting annual targets can become quite complex. Read more

When It’s OK to Lower the Performance Bar

When it comes to executive compensation and company performance, directors commonly go by the following “rule:” The goals for the coming year should exceed last year’s results. Some directors believe that, if performance goals decline, executives should not receive any bonus, even if the business environment won’t allow the company to exceed its prior performance record. But the rule that requires companies to always set higher goals for top-line and bottom-line results should not be considered hard-and-fast. Even as companies aim for long-term, continuous improvement, there are legitimate cases when lowering the bar is acceptable. Read more

Five Questions Directors Should Ask About Restricted Stock

The landscape for long-term incentive plan design has radically changed, as companies have largely replaced stock options with restricted stock as the main component of long-term incentives granted to executives. Research firm Equilar has found the percentage of S&P 1500 businesses granting options decreased from 79% in 2007 to 75% in 2012, while companies issuing restricted stock jumped from 80% to 92% in the same period. Read more

Using Long-Term Incentives as a Strategic Driver

A clear and differentiated business strategy is critical to a company’s long-term success. The same is true for a well differentiated strategy for long-term incentive compensation. A tailored and thoughtful approach to long-term incentives can be a valuable management tool—reinforcing for both executives and company stakeholders the company’s key performance imperatives. Read the entire article (PDF) written by Seamus O'Toole and Blair Jones. Read more

Adjusting Comp Goals “After the Fact”

Goal setting for executive incentive plans is generally a difficult proposition. In many situations, it would be desirable to have the flexibility to adjust plan targets automatically on an “after-the-fact” basis if the actual operating environment deviated significantly from the company’s original budgeting and planning assumptions. This article lays out an approach for automatically adjusting plan targets in a prescribed manner and illustrates the approach with a case study based on one of our clients. Read more