Meridian Compensation Partners has found that companies using total shareholder returns (TSR) as a gauge for determining executive pay are now in the majority as the number of firms deploying TSR as a key factor for performance-based-pay rose from 44 percent in 2009 to 58 percent in 2012. Its annual survey polled approximately 140 companies with a median revenue of $4 billion. The survey found that employers frequently defined standards for executive performance in 2012 by considering their experience over the past year.
Additionally, most respondents reported raising performance targets by over 5 percent. However, this increase in performance targets has left many executives categorized as underperformers, as nearly two-thirds of respondents reported an annual incentives payout in 2012 that exceeded their pre-determined pay-for-performance goals, a drop of 7 percent from 2011. At that time, 68 percent of respondents reported that their high-earning executives exceeded performance goals.
Overall, the survey found that most companies feel that their individual formula determining pay-for-performance values are in alignment with their shareholders. Over 90 percent of respondents said that they would receive shareholder approval if it were to become necessary for implementing their pay-for-performance strategies.
“The growing prevalence of TSR as the primary metric in long-term performance plans clearly demonstrates a trend of company’s efforts to tie executive pay more closely with shareholder results. We expect to see continued use of relative TSR metrics in the future, particularly at companies receiving scrutiny over their pay-for-performance alignment,” Patrick Powers, a Meridian consultant, said.