Long-Term Incentive Insights

What's driving the use of long-term incentives.  A recent on-point survey from Pearl Meyer & Partners provides a few insights gathered from over 200 participants, ranging from Fortune 500 members to not-for-profits and emerging high-growth companies, and including both employee and outside director perspectives.  (Of the 205 participants, 60% responded as employee managers of their respective organizatins and 40% as outside directors of their companies.)

Some select outtakes from the survey's findings:

Above market LTI targeting is common.  When it comes to benchmarking LTI, 38% of respondents target around the 50th percentile while another 41% target above the 50th percentile.

Outside directors and employee managers have some different viewpoints on LTI objectives.  While both outside director and employee respondents cite incentive and retention as their top two objectives, their points of view diverge when considering market competitiveness and wealth accumulation as goals.  Employee managers overwhelmingly cite market competitiveness (78% of employees versus 48% of outside directors) and wealth accumulation (25% of employees versus 9% of outside directors) as LTI objectives.

Hesitation about using LTIs as special retention awards.  Both employee managers and outside directors agree that these "sometimes" make sense.  The strongest opposition to special awards comes relative to using them in response to a market downturn (22% of respondents say "never or rarely", 66% say "sometimes") or when the firm is acquiring (29% say "never or rarely", 53% say "sometimes") or divesting (23% say "never or rarely", 58% say "sometimes") another unit.

TSR (total shareholder return) not the top performance consideration.  73% of outside directors and 58% of employee managers say they always consider company performance in making LTI awards.  However, 53% of respondents say they never or only sometimes consider TSR.  61% of respondents say they consider performance other than TSR always or most of the time.

Most new hire LTI awards not tied to specific targets or guidelines.  More than half of the respondents don't rely on specific targets or guidelines when determining new hire awards.  The two primary factors most cited in new hire award size are equity of peers at the firm and typical annual award size.

More information on the study can be found here.

Creative Commons image "Money" by Aaron Patterson

Comments

[Joe]

Thanks for sharing!

I don't follow the TSR piece. They are saying companies use TSR as a grant process--as opposed to a vesting process? That seems odd to me and I didn't realize companies did that up front.