Meridian Compensation Partners Completes 2012 Trends and Developments in Executive Compensation Survey.
LAKE FOREST, Ill., Apr 24, 2012 (BUSINESS WIRE) — Meridian Compensation Partners, LLC determined that four of five companies set their 2012 primary earnings-related annual incentive goal above levels set in 2011, while 16% kept goals similar to last year. In fact, 44% set their earnings-related goals more than 5% higher than those set in 2011. The survey consists of approximately 150 companies with median revenues of $3.2 billion and median market values of $4.0 billion.
With investors eager to see stronger earnings, annual goal-setting has been at the forefront in many compensation-related discussions in the boardroom. ISS’s increased scrutiny on this issue has also been noted in many reports issued thus far in 2012.
According to John Anderson, Partner at Meridian, “The results clearly show that along with rigor in setting stretch performance goals, companies are gaining confidence in terms of earnings visibility and added transparency in the annual incentive goal-setting process, and they fully expect this positive trend to continue in 2012.”
Meridian also found that the most common merit increase for senior-most executives in 2012 was between 3.0% and 3.5%. Furthermore, 20% implemented a merit budget increase above 3.5%, often due to pay requirements in emerging markets.
The study determined that 42% of companies increased target long-term incentives (LTI) values for senior-most executives for 2012, while nearly one-half kept the target values the same as 2011. In addition, performance-based awards have clearly become the most heavily-weighted LTI vehicle, comprising 52% of the total 2012 LTI value, on average.
The survey also found that, of companies using one or more long-term performance plans for executives, performance shares were by far the most common vehicle (73%). Additionally, over half of the companies surveyed indicated the use of a Total Shareholder Return (TSR) metric in one or more of their long-term performance plans, increasing TSR usage to roughly the same prevalence of all profit measures combined.
With regards to Say on Pay outcome expectations, most companies (91%) expect to receive shareholder support above the critical level (70%) in 2012. Additionally, 81% of companies surveyed made an effort to better understand ISS’s likely pay-for-performance test outcomes by either having an outside compensation consultant or others replicate these tests. Source/Credit: MarketWatch.com