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Chief executive officers whose companies financially outperformed their peers over a three-year period received long-term incentive award payouts that were more than 50 percent above their target, according to an analysis by consultancy Watson Wyatt Worldwide.
The analysis shows that:
Long-Term Performance Plan Payouts
Three-Year Total Returns to Shareholders
Median Payout asPercent of Target
Source: Watson Wyatt Worldwide
The analysis was based on CEOs at 177 companies who remained in their jobs for the three-year period and who received long-term performance share or cash awards. It did not include stock options or restricted stock awards that the CEOs may have also received.
“The fact that high-performing companies rewarded their CEOs with above-target payouts shows a strong correlation between pay and performance,” says Ira Kay, global director of compensation consulting at Watson Wyatt. “We believe that for the most part, strong company performance led to above target awards. While there may be a few cases of companies setting goals that were too easy to achieve, it’s clear that rewards play a crucial part in driving most CEOs to excel.”
The analysis also found that:
“With the SEC disclosure rules now in effect for the second year, performance goals for annual and long-term incentive plans are sure to attract more attention this proxy season," Kay says.
Although many companies are still deciding whether to disclose performance goals used in their executive pay programs, he adds, "We expect companies will continue to focus on shareholder-friendly core pay elements. They will also continue to reinforce the link between pay and performance through increased transparency and difficult but attainable performance goals.”
Stephen Miller is manager of SHRM Online's Compensation & Benefits Focus Area.
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