Study of proxies shows companies offering more information linking pay to performance, Towers Watson says
Growth in compensation for chief executive officers slowed sharply in the US last year as ‘say on pay’ votes punished lower earnings and companies increasingly linked pay to total return to shareholders, according to a study of proxies by professional services company Towers Watson.
Total pay for CEOs, including base salary, actual annual and long-term cash bonuses and other benefits, rose 1.2 percent in 2012, compared with growth of 6.7 percent in 2011, according to the Towers Watson study of the 270 members of the S&P 1500 that had filed the information by late March.
Annual bonuses prompted the slowdown, falling 16 percent between 2011 and 2012, the research shows. Long-term incentives, which make up the bulk of pay for CEOs of larger companies, increased 5.6 percent at the same time. Meanwhile, the percentage of CEOs who received bonuses that were at, or below, their target levels fell to 47 percent in 2012 from 58 percent in 2011. Annual wage growth for CEOs slowed to 2.8 percent from 3 percent the year before.
Towers Watson says the most ‘significant shift’ in CEO compensation in recent years has been the move toward performance-based long-term incentives, with 44 percent of S&P 1500 companies having long-term performance plans. Total shareholder return (TSR) has also surpassed earnings per share (EPS) as the most-used measure for these plans, with 41 percent of companies now using TSR and 40 percent using EPS.
The research shows companies with high executive pay are the most likely to receive low shareholder support on say-on-pay votes, followed by companies with lower-than-expected shareholder returns. Still, at the 160 companies that have disclosed results of mandatory say-on-pay votes so far, support averaged 90 percent, and only three failed to win a majority.
‘While the say-on-pay experience has been positive for most companies, we continue to see a small number of cases in which shareholders use the vote to send companies a message about pay and performance,’ says Todd Lippincott, leader of Americas executive compensation consulting at Towers Watson, in a statement.
‘Our research shows companies with poor shareholder returns are five times as likely as other companies to receive low say-on-pay support, while those with high CEO pay opportunities are eight times as likely.’
The Towers Watson research further shows that 26 percent of companies gave investors supplemental charts in their 2013 proxies detailing the relationship between pay and performance, an increase from 17 percent last year and 9 percent in 2011.
