The Recruiting News
Changing Landscape of Executive Compensation and Corporate Governance Practices
(October 19, 2011)
Meridian's Study Identifies Changing Landscape of Executive Compensation and Corporate Governance Practices Among Major U.S. Companies
Meridian Compensation Partners, a leading executive compensation and corporate governance consulting firm, has identified that a majority of large U.S. companies are strengthening their executive compensation program's pay and performance alignment as well as implementing shareholder friendly corporate governance practices.
"The pace at which companies have adopted more rigorous executive compensation programs and sound corporate governance practices is remarkable and confirms that Boards and management teams are listening to shareholders," observed Matthew Isakson, a senior consultant at Meridian. He continued, "It is notable that Boards now require performance based awards to be the primary component of long-term incentives, especially considering the volatile and challenging economic environment."
The findings are part of Meridian's 2011 Corporate Governance and Incentive Design Survey which reviewed pay practices of 250 large U.S. companies with median revenues of $12.8B. Among the findings:
- The mix of long-term incentives ("LTI") has shifted dramatically from stock options to performance shares. Nearly 90% of companies surveyed now use a performance share-type instrument that pays out only upon achievement of certain performance criteria, most often relative total shareholder return or critical financial performance metrics. However, stock options and service-based restricted stock remain prevalent too; used by 72% and 64%, respectively. This demonstrates widespread use of a "portfolio" approach towards LTI grant practices.
- Companies are now providing almost one-half (46%) of an executive's LTI value in performance shares. Stock options, which are worthless unless there is share price appreciation, now account for only one-third of the LTI value (down dramatically from 80% ten years ago), while service-based restricted stock makes up the remaining value delivered (21%).
- Nearly 80% of companies now have a majority voting standard (versus a plurality voting standard) in place for director elections. Additionally, over 90% of these same companies have a mandatory resignation policy in place if a director fails to receive majority support from shareholders.
- While separating the Chairman of the Board and Chief Executive Officer roles remain a strong minority practice (36% prevalence) among U.S. major companies, Boards appear to be responding to concerns over Board leadership and separation of duties. This is illustrated through our findings that 9 in 10 major U.S. companies now have a Lead Director role in place, often with very significant responsibilities.
About Meridian Compensation Partners
Meridian Compensation Partners, LLC is one of the largest, independent executive compensation consulting firms in the industry. Founded in 2010, Meridian is wholly owned and operated by its partners, and provides trusted counsel to compensation committees and senior management at hundreds of preeminent large and mid-cap corporations. Averaging more than 20 years of tenure, Meridian's Partners have industry-leading knowledge and experience, along with depth of resources, to provide expert advice and support on executive compensation and governance related matters. Visit us at www.meridiancp.com
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