Looking Ahead to Executive Pay Practices in 2018 Executive Summary
Table of Contents Introduction Compensation Committee Governance Projections for Executive Pay in 2018 Annual Incentive Plans Long-Term Incentives CEO Pay Ratio About Pearl Meyer 3 4 5 7 8 9 10 Pearl Meyer On Point: Looking Ahead to Executive Pay Practices in 2018 Executive Summary 2
Introduction This report provides sample highlights of Pearl Meyer s annual planning survey, Pearl Meyer On Point: Looking Ahead to Executive Pay Practices. Additional data and analysis can be found in the full report. The 2018 planning survey provides insights on: Compensation committee governance; Executive incentive practices both annual and long-term incentives, with detail such as plan satisfaction, performance metrics, and goal-setting; 2018 pay projections; and The CEO Pay Ratio disclosure and how companies are preparing for the forthcoming Dodd- Frank rule. The full survey report reflects responses from 276 companies, including 216 senior executives and 60 outside directors, and is summarized across several demographics including company size (revenues), form of ownership (public versus private), primary role (employee versus outside director), and industry. All survey participants receive a complete report and non-participants may purchase a full copy of the survey results, which can be very useful for any company s 2018 pay planning, for $395 at www.pearlmeyer.com/knowledge-share/research-report/looking-ahead-to-executive-paypractices-2018. To discuss any details about the survey, please contact David Seitz, managing director, at david.seitz@pearlmeyer.com. Pearl Meyer On Point: Looking Ahead to Executive Pay Practices in 2018 Executive Summary 3
Compensation Committee Governance Compensation committees utilize a variety of materials for making executive pay-related decisions. 10 8 6 86% Materials Utilized by Committee 83% 65% 46% 4 21% Pearl Meyer On Point: Looking Ahead to Executive Pay Practices in 2018 Executive Summary 4
Projected 2018 Base Salary Increases Most companies are projecting executive salary increases of 3% for the CEO and direct reports. 6. Projected Base Salary Increases 5. 4.8% 4. 4. 3. 3. 3. 3. 3. 2. 1. 0. 25th Pctl. Median 75th Pctl. CEO Direct Reports Pearl Meyer On Point: Looking Ahead to Executive Pay Practices in 2018 Executive Summary 5
Projected 2018 Annual Incentive Payments Projected 2017 annual incentive payouts (to be paid in early 2018) are expected to be around 10 of target. 4 35% Projected Payouts: Percent of Target 34% 25% 27% 26% 15% 8% 5% 5% Significantly Below Target (less than 8) Below Target (8-99%) 10 Target Above Target (101%- 1) Significantly Above Target (+1) Pearl Meyer On Point: Looking Ahead to Executive Pay Practices in 2018 Executive Summary 6
Annual Incentive Basis for Targets and Performance Metrics Annual incentive targets are usually based on budget (58%). 7 6 58% Basis for Targets Most companies utilize growth/income/cash flow metrics. 5 4 13% 5 45% 4 Most Common Performance Metrics 46% Annual Budget Management Proposal Formula-Based 35% 25% 32% 26% 24% 15% 5% Revenue Net Income EBIT EBITDA Pearl Meyer On Point: Looking Ahead to Executive Pay Practices in 2018 Executive Summary 7
Long-Term Incentives Impact on Behavior and Target-Setting Most companies (53%) believe that the long-term incentive plan has some impact on executive behavior and focus. Impact on Behavior 53% 28% 5% 12% 3% Significant Impact Some Impact Little Impact No Impact Unsure 9 8 7 6 5 4 Most companies (8) set long-term incentive targets using internal forecasts. 8 Basis for Targets Internal Forecasts Peer Analysis "Gut Feel" Pearl Meyer On Point: Looking Ahead to Executive Pay Practices in 2018 Executive Summary 8
CEO Pay Ratio Disclosure Most companies (38%) expect a CEO Pay Ratio between 100:1 and 250:1. Companies with revenues below $300M are more likely (62%) to expect a ratio of 50:1 or less. 5 4 27% Expected CEO Pay Ratio 38% Most companies (76%) have not discussed how to communicate the ratio internally and externally. Communication Strategy 17% 14% 24% Below 50 to 1 51-100 to 1 101-250 to 1 251-400 to 1 Above 400 to 1 4% 76% No Discussion Some Discussion Pearl Meyer On Point: Looking Ahead to Executive Pay Practices in 2018 Executive Summary 9
About Pearl Meyer Pearl Meyer is the leading advisor to boards and senior management on the alignment of executive compensation with business and leadership strategy, making pay programs a powerful catalyst for value creation and competitive advantage. Pearl Meyer s global clients stand at the forefront of their industries and range from emerging high-growth, not-for-profit, and private companies to the Fortune 500 and FTSE 350. The firm has offices in New York, Atlanta, Boston, Charlotte, Chicago, Houston, London, Los Angeles, and San Francisco. Pearl Meyer On Point: Looking Ahead to Executive Pay Practices in 2018 Executive Summary 10
NEW YORK 570 Lexington Avenue, 7th Floor New York, NY 10022 (212) 644-2300 newyork@pearlmeyer.com ATLANTA One Alliance Center 3500 Lenox Road, NE, Suite 1708 Atlanta, GA 30326 (770) 261-4080 atlanta@pearlmeyer.com BOSTON 93 Worcester Street, Suite 100 Wellesley, MA 02481 (508) 460-9600 boston@pearlmeyer.com CHARLOTTE 3326 Siskey Parkway, Suite 330 Matthews, NC 28105 (704) 844-6626 charlotte@pearlmeyer.com CHICAGO 123 N. Wacker Drive, Suite 860 Chicago, IL 60606 (312) 242-3050 chicago@pearlmeyer.com HOUSTON Three Riverway, Suite 1575 Houston, TX 77056 (713) 568-2200 houston@pearlmeyer.com LONDON Collegiate House 9 St. Thomas Street London SE1 9RY, UK +44 (0)20 3384 6711 london@pearlmeyer.com LOS ANGELES 550 S. Hope Street, Suite 1600 Los Angeles, CA 90071 (213) 438-6500 losangeles@pearlmeyer.com SAN FRANCISCO 1390 Market Street, Suite 200 San Francisco, CA 94102 (415) 651-4560 sanfrancisco@pearlmeyer.com For more information on Pearl Meyer, visit us at www.pearlmeyer.com or contact us at (212) 644-2300. 2017 Pearl Meyer & Partners, LLC. All Rights Reserved.