More Companies Reveal Specific Executive Pay Goals in 2008 Proxy Statements, Watson Wyatt Analysis FindsFewer Than Half Show How Pay Reflects Corporate Performance
WASHINGTON, D.C., April 9, 2008 — More U.S. companies have disclosed the specific goals used in their executive compensation plans in their 2008 proxies than in 2007, although roughly one-third still do not provide this information, according to a new analysis of 2008 company proxy statements by Watson Wyatt Worldwide, a leading global consulting firm.
Watson Wyatt found that more than two-thirds (68 percent) of the 75 large, publicly traded companies studied disclosed the actual goals on which they based rewards under their 2007 annual incentive plans, up from 54 percent that disclosed goals last year.
Additionally, 57 percent included the goals for long-term incentive plans, compared with 45 percent one year ago. New Securities and Exchange Commission (SEC) rules request such information, unless providing it would result in competitive harm. Of those that did not disclose actual goals, only 19 percent stated affirmatively that disclosing them would result in competitive harm.
“With more companies disclosing their goals, it is easier to determine if pay programs are rewarding executives for maximizing shareholder value,” said Ira Kay, global director of compensation consulting at Watson Wyatt. “The SEC wants to give shareholders the ability to determine if goals are too easy or too hard and if executives are focused on the right things. Without disclosure of specific financial goals — for example, earnings per share growth of 10 percent — shareholders will have difficulty determining if their company follows its pay-for-performance philosophy.”
Watson Wyatt also found that slightly more than half (56 percent) provided a detailed description of how total pay earned during 2007 tied to company performance. Even fewer (36 percent) provided an analysis of how well the company performed versus its industry peers. The SEC had requested companies provide this type of analysis in the proxies for 2008, the second year the SEC’s stepped-up proxy disclosure rules are in effect.
“Most companies have a very positive pay-for-performance story to share, yet a surprisingly large number are not taking the opportunity to tell it,” said Steve Seelig, executive compensation counsel at Watson Wyatt. “Showing how executive pay varies with performance and compares to the competition would go a long way in addressing the concerns of shareholders and critics of the U.S. executive pay model.”
Some companies are taking steps, however, to reduce some of the less shareholder-friendly or non-core elements of compensation such as executive pensions and severance. About one of ten companies (11 percent) reported making changes to executive pensions. And, all 24 percent of companies that made changes to their severance or change-in-control programs reduced the potential payments to executives.
“Companies are increasingly sensitive to the appropriateness of existing severance and change-in-control provisions,” Kay said. “As a result, companies are putting more emphasis on maintaining core pay programs that are well aligned with corporate performance.”
For more discussion on Watson Wyatt’s views on protecting core executive compensation pay elements, see http://www.watsonwyatt.com/us/pubs/insider/showarticle.asp?ArticleID=18797.
About Watson Wyatt
Watson Wyatt (NYSE, NASDAQ: WW) is the trusted business partner to the world’s leading organizations on people and financial issues. The firm’s global services include: managing the cost and effectiveness of employee benefit programs; developing attraction, retention and reward strategies; advising pension plan sponsors and other institutions on optimal investment strategies; providing strategic and financial advice to insurance and financial services companies; and delivering related technology, outsourcing and data services. Watson Wyatt has 7,000 associates in 32 countries and is located on the Web at www.watsonwyatt.com.
Contact
Ed Emerman
609-275-5162
eemerman@eaglepr.com
Steve Arnoff
703-258-7634
steven.arnoff@watsonwyatt.com
  | 
