WASHINGTON, D.C., January 24, 2008 – A significant number of large U.S.
companies do not plan to disclose performance goals for their executive pay
programs in their 2008 proxy statement, according to a poll by Watson Wyatt
Worldwide, a leading global consulting firm.
Watson Wyatt found only 42 percent of companies plan to disclose on their
2008 proxy the specific goals used in their executive compensation plans
for the 2007 fiscal year. Thirty-one percent of companies have no plans to
reveal the goals. The remaining 27 percent are unsure. The Securities and
Exchange Commission (SEC) adopted new disclosure rules, effective for the
2007 proxy season, as part of an effort to provide investors with a clearer
picture of how a corporation’s executives are compensated. The rules
request companies disclose their performance goals, unless providing them
would result in competitive harm.
The findings are based on a Watson Wyatt poll of legal, compensation and HR
executives at 135 large, publicly traded companies.
“Setting sufficiently challenging performance goals and appropriate
corporate performance metrics is an extremely important part of the
executive pay process,” said Ira Kay, global director of executive
compensation consulting at Watson Wyatt. “The SEC has put significant
pressure on companies to disclose their goals so that shareholders can
determine if programs are paying for performance. However, companies are
still struggling with the decision of whether to disclose this
information.”
In addition to demonstrating their reluctance to disclose performance
goals, most companies (68 percent) do not plan to change their approach to
goal setting. However, a small but growing number of companies (21 percent)
intend to modify their compensation programs in response to the SEC rules,
a big increase from just 5 percent in a similar 2006 poll. Sixty-three
percent of companies have no plans to make changes. The remaining 17
percent are unsure. Also, most companies — 89 percent — say they will alter
the compensation discussion and analysis section of their proxy.
The poll also found that a majority of companies continue to believe the
rules will not improve company performance. Most of the companies (77
percent) polled say the disclosure rules will not have much effect on
corporate performance, a slight increase from last year. However, the
number of companies that think the rules will improve performance nearly
doubled, from 11 percent in 2006 to 21 percent in 2007.
“While the rules may not have a large impact on overall corporate
performance, they are causing companies to rethink and, in some cases,
adjust their executive compensation programs,” said Kay. “As the scrutiny
of severance, change-in-control provisions and large executive pensions
intensifies, companies are likely to continue their focus on more
shareholder-friendly ‘core’ pay elements such as performance-vested shares,
stock options and short-term incentives with difficult but attainable
performance goals.”
For more information on the SEC’s executive compensation proxy disclosure
rules, visit www.watsonwyatt.com/execcomp and
www.watsonwyatt.com/CDAscorecard.
About Watson Wyatt Worldwide
Watson Wyatt (NYSE, NASDAQ: 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 7,000 associates in 32
countries and is located on the Web at www.watsonwyatt.com.
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