Despite Economic Improvements, Most Companies Not Ready to Restore Executive Pay Cuts, Watson Wyatt Survey Finds

Many Strengthening Focus on Improved Pay-for-Performance, Risk Assessment


WASHINGTON, Oct. 6  /PRNewswire-FirstCall/ -- Despite the impending economic recovery, most U.S. companies are not planning to restore executive pay cuts or freezes made during the economic crisis in the next six months, according to a new survey by Watson Wyatt, a leading global consulting firm. As they prepare for continuing increased public scrutiny of executive pay, many are avoiding further short-term changes and focusing instead on longer-term shifts toward better pay-for-performance and assessing their compensation programs within the new context of risk management.

According to the survey, 63 percent of companies are currently not planning to reverse or restore changes made to executive salaries in the next six months. Additionally, fewer companies are considering short-term changes such as reducing salaries (2 percent are considering it now, compared with 10 percent in March). The survey also found that a vast majority of employers (92 percent) are not planning to reduce bonus opportunities or eligibility requirements.

However, approximately three in 10 companies are raising performance goals relative to this year's actual performance (29 percent) and changing metrics (31 percent) in their annual incentive plans. Four in 10 (39 percent) of companies have changed or plan to change long-term incentive vehicles. Of these companies, 42 percent plan to put more emphasis on performance-based shares and 25 percent on performance cash plans. The Watson Wyatt survey was conducted in late September and includes responses from HR and compensation executives at 187 companies.

"Companies have moved beyond the short-term frenetic activity that we saw at the beginning of the year," said Andrew Goldstein, North American co-leader of executive compensation consulting at Watson Wyatt. "Now, companies are looking at how they can best address more long-term concerns with structural changes to pay programs."

According to the survey, 94 percent of companies expect more scrutiny of executive pay in the next two years as a result of new legislation, Securities and Exchange Commission regulations and public pressures, with almost three-quarters (72 percent) expecting the relationship between pay and performance to improve. Sixty percent of companies reported having little concern regarding possible say-on-pay requirements. The majority of respondents appear to be already taking steps by improving their Compensation Discussion and Analysis (CD&A) to explain pay program rationale and appropriateness to shareholders (70 percent) or identifying potential executive pay issues/concerns in advance (67 percent).

Almost half (42 percent) of companies are concerned about potential legislation assessing executive pay for "excessive risk." Most companies have taken action to address the issue of risk: 54 percent have or plan to add a formal risk assessment process, up from 30 percent in March; 50 percent have or plan to certify in the proxy that a risk assessment has been performed, up from 31 percent in our March survey.

"Companies recognize that changes to executive pay programs will be needed to stand up against growing criticism and increased pressure," said Ira Kay, global director of executive compensation consulting at Watson Wyatt. "However, this change will be a long-term process and one that will require companies to focus on strengthening performance-based incentives, balancing risk and rewards, and meeting proactively with key stakeholders to discuss their pay program rationale."

  Other findings include:
  --  Only 12 percent plan to decrease their next fiscal year's long-term
      incentive (LTI) grant dollar value over this year's, compared with 33
      percent in March. Almost half (45 percent) do not expect their LTI
      grant values to change.
  --  Companies report moderate-to-significant concern about caps on
      incentive compensation (53 percent), expanded CD&A disclosures below
      the top five (53 percent) and elimination of the 162(m) performance
      award exemption (53 percent).

  --  Nineteen percent of companies have eliminated their golden parachute
      tax gross-up provisions, and 44 percent of companies have or are
      considering claw back policies.

  The survey report is available at http://www.watsonwyatt.com/ExecPayOct09.


  About Watson Wyatt


Watson Wyatt (NYSE:WWNASDAQ:WW) is the trusted business partner to the world's leading organizations on people and financial issues. The firm's global services include: managing the cost and effectiveness of employee benefit programs; developing attraction, retention and reward strategies; advising pension plan sponsors and other institutions on optimal investment strategies; providing strategic and financial advice to insurance and financial services companies; and delivering related technology, outsourcing and data services. Watson Wyatt has 7,700 associates in 33 countries and is located on the Web at http://www.watsonwyatt.com/. 

DATASOURCE: Watson Wyatt



CONTACT:  Ed Emerman, [phone], , or Steve

Arnoff, [phone], , both for Watson Wyatt



Web Site:  http://www.watsonwyatt.com/ 

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