"Companies are going into 2009 expecting hard times," said Ira Kay, global director of executive compensation consulting at Watson Wyatt. "Given the enormous pressure to respond to shareholders, who have been hit hard by the economic crisis, it's no surprise that all aspects of executive pay programs are being scrutinized."
Included in that review are long-term incentives. Almost one in four companies (23 percent) expect the dollar value of their long-term incentive grants to decrease in the next year, most likely as a consequence of the recent fall in the equities market. In terms of other long-term compensation vehicles, companies are putting less emphasis on stock options and relying more on performance-based restricted stock in the coming year.
The survey also found that nearly one in four companies (24 percent) has frozen or expects to freeze executive salaries within the next year, and four in 10 (39 percent) have decreased or expect to decrease planned merit increases. More than one in five companies (21 percent) has reduced or plans to reduce perquisites, while 14 percent have added or plan to add clawbacks.
"It's a challenge to provide meaningful incentive opportunities in the current environment," said Andrew Goldstein, North American co-leader of executive compensation consulting at Watson Wyatt. "Companies face a difficult balancing act - reducing pay programs in response to a very challenging economy, while continuing to retain and motivate key executives."
Other survey findings include:
- One in 10 companies (9 percent) has added, or expects to add, a special retention bonus. An additional 21 percent are considering doing so.
- Twenty-nine percent of companies expect to change the performance metrics of their annual bonus plan.
- Companies are expecting a 2009 merit increase pool of 3 percent - a drop of 25 percent from last year.
