WASHINGTON, March 28, 2007 – A significant number of U.S. companies have
not disclosed the specific goals used in their executive compensation
plans, according to a new analysis of 2007 company proxy statements by
Watson Wyatt Worldwide, a leading global consulting firm.
Watson Wyatt found that nearly one-half of the 100 large, publicly traded
companies studied — 46 percent — did not disclose the actual goals on which
they based rewards under their 2006 annual incentive plans. Additionally,
45 percent did not include the goals for long-term incentive plans. New
Securities and Exchange Commission (SEC) rules request such information,
unless providing it would result in competitive harm. The SEC adopted the
rules last year in an effort to provide investors with a clearer and more
complete picture of how a corporation’s executives are compensated.
“Whether to disclose specific performance goals may be the biggest decision
companies must make under the new SEC rules,” said Ira Kay, global director
of compensation consulting at Watson Wyatt. “The SEC may have been
expecting more companies to provide specifics, since disclosure offers
shareholders a sense of how challenging the goals are relative to financial
guidance the firm has given Wall Street.”
Although almost half of companies did not disclose specific financial goals
— e.g., earnings per share (EPS) of $2 — many more disclosed the underlying
financial metrics used to set executive compensation — e.g., EPS or another
metric such as net operating income, but without a specific dollar figure
attached to it. Eighty-five percent of companies disclosed the metrics on
which the annual awards are based, and 73 percent disclosed metrics for
long-term incentives.
Companies Change Incentive Compensation Programs
The analysis also found that two in five companies (40 percent) changed
their incentive compensation programs last year or plan to do so this year
in the wake of the new rules. However, relatively few companies (19
percent) made changes to their change-in-control policies. Only 13 percent
made changes to supplemental executive retirement programs and 10 percent
made changes to perquisite policies.
“With increasing pressure from investors to hold companies more accountable
for their executive pay programs, the new rules give companies an
outstanding opportunity to demonstrate just how their pay programs are
linked to performance. As these programs become more transparent through
proxy statements over the years, we anticipate more companies will change
the mix of pay components to maximize the connection between pay and
performance,” Kay said.
More information on the SEC’s executive compensation disclosure rules, can
be found at www.watsonwyatt.com/CDAscorecard.
About Watson Wyatt Worldwide
Watson Wyatt (NYSE: WW) is the trusted business partner to the world’s
leading organizations on people and financial issues. The firm’s global
services include: managing the cost and effectiveness of employee benefit
programs; developing attraction, retention and reward strategies; advising
pension plan sponsors and other institutions on optimal investment
strategies; providing strategic and financial advice to insurance and
financial services companies; and delivering related technology,
outsourcing and data services. Watson Wyatt has 6,000 associates in 30
countries and is located on the Web at www.watsonwyatt.com.
Contact
Ed Emerman, 609/452-5967, eemerman[at]eaglepr.com
Emily Rieger, 703/258-7634, emily.rieger[at]watsonwyatt.com
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