​​​​​Surveys - Annual Bonus

2019.08.08  Chemical Industry Analysis. This Meridian Partners alert provides significant analysis about how chemical industry performance measures (EBITDA volatility and input costs) could better factor in to the design of annual incentive plans. For instance, the alert provides statistical support for the following insight:

  • use wider payout ranges to allow participants to “get in the game” sooner, at lower (but defensible) levels of performance with a lower level of payout, but also providing for additional stretch in achieving and rewarding upside performance.

2019.06.19  ClearBridge 100 Report about Annual Incentive and Long-term Incentive Plans. See this 23-page report for survey data about plan design terms such as the following quoted from the report:

  • ​Most companies (90%) use multiple AIP performance measures, with the use of three performance measures being most prevalent in 2018 (41% prevalence).
  • The most common AIP performance measure is earnings (92%), with EPS as the most prevalent earnings metric. Revenue has grown in prevalence in recent years and is now the second most common measure (51% in 2018 vs. 42% in 2016).
  • Performance is almost always measured on an absolute basis (93%), as opposed to a relative basis against an external peer group or index.
  • A majority of companies (61%) set their maximum AIP payout opportunity at 200% of target. 

2018.  Bank Executive Compensation.  This Pearl Meyers survey provides data drawn from its online survey "conducted between August and September 2017 and the data is based on responses from 72 banks and 275 organizations overall. The results are summarized by bank asset size and primary role of the respondent (management versus board member)."

2018  Private Company Practices.  See this extensive survey of 2017 annual incentive practices.  Vivient Consulting and World at Work have well-presented data based on responses from 215 private for-profit companies. There are separate results for data drawn from responses by more than 110 nonprofit and government organizations.  

2017.Jan  FW Cook's Top 250 Report re Annual Incentive Compensation. This 20-page report is rich with date, and begins with an executive summary quoted here:

  • Eighty-three percent of companies in the Top 250 use at least one specific financial measure to determine annual incentive payouts, of which 75% use two or more financial measures.
  • Non-financial measures (e.g. strategic and individual performance) are also common and are used as a stand-alone measure by 52% of companies with non-discretionary plans.
  • Profitability measures are not only the most prevalent annual incentive measures (utilized by 92% of companies with non-discretionary plans), but profitability measures also carry the heaviest weighting among the companies that use them (on average, comprise 59% of the weighting of annual incentive plans among those that use them).
  • Among companies with heads of business units reported in their proxy statements, the dominant practice is to emphasize corporate over business unit results for these officers.
  • Sixty-two percent of companies in the Top 250 provide a maximum annual incentive payout opportunity of 200% of target, with the remainder divided approximately equally above and below 200%.

2016.May Incentive Plan Practices.  This Steven Hall & Partners study provides 15 pages of data covering items such as fixed vs variable pay, types of incentives, performance targets, and long-term incentives.

2014.Feb   Private Company Short-term Awards -  for detailed survey results, see pages 11-18 of this world at work survey

2013.Nov.20  Survey: Annual Incentive Plans for Top Executives.  The survey results that Pearl Meyer & Partners has made available provide some interesting insights into the different approaches taken by private vs. public employers. For example, the annual incentive plans for public employers generally take a target-based approach, by a 3-to-1 multiple over formula-based pools and discretionary bonuses. By contrast, private employers use the latter approaches twice as often – indicating more heavy reliance on discretion (whether to divide a bonus pool or to make individualized awards). Interestingly, companies with revenues over $1 billion set maximum bonuses at 200% of target, while smaller companies imposed a 125% or 150% limit.

2013.July  Performance Measures in CEO Employment Agreements - Academic-mathematical study by Univ. of Texas Profs. Here is a sense of the study, drawn from its opening abstract:

  • “We document that net accruals-based measures (e.g., earnings) are used as the primary measures, supplemented with gross (sales) and cash flows measures (e.g., operating cash flows). Consistent with agency theory, cash flows measures are more useful for firms with more liquidity concerns and longer CEO employment horizons; and accounting returns (sales) are less (more) useful for growth firms. We also document significant time series variation in the choice of performance measures. The time series variation is driven by accounting underperformance in the previous year, as well as changes in firm fundamentals and CEO." 

2013.May  Annual Performance Metrics - Number and Kind - see pages 13-16 of this Meridian Partners Report for excellent detailed data. Also see page 32 of this Kenexa report for a table titled "What are the predominant metric types used in CEO incentive plans in this fiscal year?" - with comparative information for short-term vs long-term incentive plans for CEOs. The frames that follow provide data indicating 46% of companies rely on internal performance measures with 19% relying exclusively on comparisons to peer performance, and with 35% considering both.  

2013.Jan  CFO Survey – Performance Bonus Targets – see this AICPA Report (comprehensive data from 2300+ participants), and this Grant Thornton report for a table (on page 7) listing the frequency of 16 different possible performance measures, and the extent of their usage from 2008 to 2012 in determining CFO compensation. 

2011.Oct.  Short-term and Long-term Performance Plans (survey of 200 S&P 500 public companies). James Reda's 30+ page report is comprehensive and includes the following findings (quoted loosely from the report):

  • TSR, EPS, income, and capital efficiency ratios were once again the most commonly used long-term incentive measures in 2010. Capital efficiency measures increased significantly from 31% of companies with LTIPs in 2009 to 41% in 2010.
  • 72% of STIPs included multiple performance measures in 2010, an increase from 70% in 2009 and 65% in 2008. 
  • 32% of STIPs included two measures, 24% included three measures, and another 15% used four or more performance measures.
  • Most companies with long-term incentive plans had either one (40%) or two (39%) performance measures. However there continues to be a shift to the use of more measures as the percentage of companies using only one measure declined (from 59% in 2008 to 40% in 2010). 
  • 73% of long term incentive plans with a relative performance measure used TSR in 2010. 68% of TSR targets were set at the 50th percentile of the comparator group or index.
  • Maximum payouts were most often capped at 200% of target for both short-term and long-term incentives (53% for STI and 56% for LTI).

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