A recent survey has found that the number of companies that froze salaries and added clawback policies to their executive pay programs jumped sharply between December 2008 and February 2009. It also found that many companies plan to slash funding for annual bonuses and reduce the value of long-term incentive (LTI) awards.
Key Details
The main findings of the Watson Wyatt survey include:
* The percentage of respondents that froze salaries jumped to 55 percent in February from 21 percent in December. Forty-eight percent of respondents plan to decrease this year’s bonus pool by an average of about 40 percent.
* Twenty-three percent of respondents have added a clawback policy. Thirty-three percent of respondents also expect that their LTI grant dollar values will fall, with an average decline of 35 percent.
* Thirty-seven percent of companies that have already reduced or plan to reduce long-term incentive grants said they did so because it was the “right thing to do in response to shareholder value.” Thirty-four percent cited declining competitive pressures from the market, while slightly lower percentages cited internal reasons such as a lack of shares available in the plan (29 percent), managing dilution or the run rate (32 percent) and poor company performance (23 percent).
* Another issue for compensation committees is the current regulation landscape. Approximately half of companies surveyed said that they were moderately to significantly concerned about so-called “say on pay” measures (56 percent), expanded Compensation Discussion and Analysis (CD&A) disclosures (50 percent), deferred compensation limits (46 percent) and excluding “excessive risk” from compensation programs (43 percent).
* More than 70 percent of companies surveyed have not added a formal risk assessment process, and 69 percent have not certified in their proxy that a risk assessment has been performed.
See full Article.
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