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Study: Companies making executive pay programs more shareholder friendly

WASHINGTON, Aug. 20, 2008 — A growing number of U.S. companies are making their executive pay programs, as well as portions of their executive benefit plans and severance policies, more shareholder friendly, according to an analysis of 2008 company proxy statements by Watson Wyatt Worldwide.

In its analysis of 75 large, publicly traded companies, Watson Wyatt found that 87 percent now have stock ownership guidelines and requirements for executives, an increase from 75 percent in 2007. Additionally, 38 percent have a claw-back policy that enables companies to recoup incentive compensation if the financial measures underlying the incentive plans are restated. That compares with just 23 percent in 2007.

“Shareholders are often critical of executive pay packages, and companies are listening to their concerns by proactively developing more shareholder-friendly pay practices,” said Ira Kay, global director of compensation consulting at Watson Wyatt. “While not all companies have yet to follow suit, both shareholders and the Securities and Exchange Commission can be pleased with the trend.”

The analysis also found that many companies are making or considering changes to their “non-core” compensation programs. Roughly one in four companies (24 percent) has made or is considering changes to its severance policies while 43 percent have amended or are considering amending their change-in-control policies. Approximately one in 10 companies (11 percent) changed its Supplemental Executive Retirement Plan in 2007.

“Companies are looking to change their non-core compensation programs, while fine-tuning their performance measurement for core cash and stock incentives. In the long run, this approach will improve transparency and help ensure that executives are being rewarded for performance,” said Andrew Goldstein, North American co-leader of executive compensation consulting at Watson Wyatt.

The analysis also noted that companies have begun to moderate their targeted executive pay levels and have brought them more in line with those of their peers. In 2008, the vast majority of companies set their targeted total pay and individual pay elements at or near the 50th percentile.

For more information, read the Watson Wyatt Insider article on 2008 compensation discussion and analysis findings, available here.