James F. Reda & Associates Releases Study on Incentive Plan Performance Measures and Design Structures
While improved over the previous year, reporting of performance metrics and related payouts was inconsistent among the largest companies in the U.S.
New York, NY (PRWEB) April 29, 2008 -- A majority of 2007 proxy disclosures on annual and long-term incentive plans were inconsistent and incomplete when disclosing incentive performance metrics according to the "Proxy Disclosure: Incentive Plan Performance Measures and Design Structure Study," conducted by James F. Reda and Associates, a New York-based compensation consulting firm. The study analyzed proxy statements at "Fortune" magazine's top 300 public companies.
Surprisingly, many top U.S. publicly traded companies failed to disclose or explain their incentive performance metrics. A study of 2007 proxies of nearly 300 companies revealed only 16% (46) of the companies provided complete disclosure of performance metrics and payout information for short-term incentive plans (STIP), while 19% did not provide any STIP performance metrics. 65% (190) of the companies had long-term incentive plans (LTIP), and of those, only 46% (88) included a reasonably complete set of performance metrics information and corresponding payout percentages.
"Companies improved their incentive plan disclosure over prior years, but we would like to see more consistency," said Jack Moran, Managing Director of James F. Reda and Associates. "Soon we will have the 2008 proxy filings and we will research them to determine if the improvement continued," Moran concludes.
James F. Reda & Associates "Proxy Disclosure: Incentive Plan Performance Measures and Design Structure Study" presents findings on incentive plan design on "Fortune" magazine's top 300 public companies.
In addition, the study found that:
- TSR and EPS were the two most commonly used long-term incentive measures while income/profit measures and EPS were the most commonly used short-term incentive measures
- Most companies with long-term incentive plans had either one (60%) or two (32%) performance measures
- Short-term incentive plans usually included multiple performance measures
- Relative performance measures to peer groups were rarely found in short-term incentive plans (8%)
- 43% of companies with a long-term incentive plan used a relative measure
- 50% of long-term incentive plans with a relative performance measure used a total shareholder return measure, with the target set at the 50th percentile of a peer group
- In all, two-thirds of companies with relative performance measures used total shareholder return for long-term incentive plans
- For companies using the 50th percentile as target for a relative performance measure, over half (57%) set threshold performance at the 25th percentile
About James F. Reda & Associates, LLC
James F. Reda & Associates is an independent executive compensation and corporate governance consulting firm assisting companies with the design, implementation and disclosure of executive pay programs, the assessment of competitive pay levels, the regulatory nuances associated with executive compensation arrangements, and the development of contemporary corporate governance policies. Headquartered in New York City, JFR's principal consultants have over 75 years of combined experience with compensation consulting, designing, implementing and communicating performance-oriented compensation programs. Additional information is available at http://www.jfreda.com.
A complimentary copy is available to download, or by contacting Meredith Olson at 646-367-4463.
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