A new Towers Watson study finds that high-performing companies' executive pay programs differ from others in the S&P 1500 in three key ways:
● They put more emphasis on stock options.
● They target pay levels at median market rates.
● They steer clear of the "one size fits all" tendency and evolve as the company grows and matures.
"We found that many high performers differentiate their pay programs in ways that many observers, including proxy advisory firms, would view unfavorably," says TW executive pay consultant Todd Lippincott, one of the authors of the study.
Moreover, he says, the findings suggest high-performing companies with annual revenue in the $500 million to $2 billion range are more likely than their similarly sized competitors to retain the less complex incentive practices associated with smaller start-ups and early-stage companies.
"In short, they keep it simple and focus on a few key goals,” said Lippincott.
The study—which analyzes the executive pay programs at the 50 companies with the most sustained and consistent outperformance in total shareholder return versus the S&P 1500 over the past 15 years—identified two other executive pay practices that high-performing companies use: a stronger long-term pay orientation; and the use of return metrics such as return on invested capital and return on equity when long-term performance plans are used.
Read the full Towers Watson Executive Compensation Bulletin.
