Companies Strengthening How Incentive Programs Align with Business Strategy - WorldatWork - 16 Mar 2010

Companies Strengthening How Incentive Programs Align with
Business Strategy

March 16, 2010 — As a result of the recession and legislative focus
on executive pay, companies are beginning to strengthen how their
incentive compensation programs align with business strategies to
reinforce payouts that are commensurate with performance.

According to a recent survey by Mercer, half of organizations questioned said they
had introduced or plan to introduce new financial performance measures
to their 2010 annual incentive program. The 2010 US Executive
Compensation and Performance survey found that one-third of
organizations have introduced new financial measures to their annual
incentive plans while 17% introduced non-financial measures; one-fifth
of organizations are allowing for more discretion with their annual
incentive plan payouts, indicating continued uncertainty of the
economic environment. Other changes include increasing the range of
performance for corresponding payout levels and increasing threshold
payout opportunities.

“The demand from shareholders and legislators to tie pay to
performance is not subsiding,” said Bruce Greenblatt, a partner with
Mercer’s rewards consulting business. “Companies want to set credible
goals that will motivate employees and satisfy stakeholders, but
goal-setting remains a challenge with the economic outlook still
uncertain.”

According to Mercer, payouts reflect the difficult year
organizations faced in 2009. Almost half (48%) of companies expect their
annual incentive plans to pay out below target or not at all. For many
organizations, this is the second year with weak incentives. Just 5%
of companies are planning for maximum payouts.

Long-term incentive programs

According to the survey, long-term incentive (LTI) grant levels
appear to be stabilizing. While 26% of organizations reduced the dollar
value of 2009 LTI grants relative to targets, most organizations (65%)
awarded grants consistent with the value of historic targets. At this
point in their planning, more than half (59%) of companies expect to
deliver the same value in 2010 as 2009, while 24% are still finalizing
their plans.

Of those organizations that reduced LTI grant values relative to
targets in 2009, the survey found, actions for 2010 are split between

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