WASHINGTON, D.C., December 11, 2008 — With the recession showing no end in sight and the current spotlight on executive pay, many U.S. companies are cutting back on the annual bonuses and long-term incentives they pay their executives, according to a survey by Watson Wyatt, a leading global consulting firm.
Watson Wyatt’s survey, “The Effect of the Economy on Executive Compensation Programs,” found that one in two companies (49 percent) plan to reduce the size of their executive bonus pool compared with last year. Of these companies, 30 percent expect a cut of up to 20 percent, 35 percent expect a cut of 20-to-50 percent, 23 percent expect a cut of 50 percent or more and 11 percent do not plan to pay any annual bonuses at all. Watson Wyatt’s survey, conducted in December 2008, includes responses from 264 companies across a variety of industries.
“Companies are going into 2009 expecting hard times,” said Ira Kay, global director of executive compensation consulting at Watson Wyatt. “Given the enormous pressure to respond to shareholders, who have been hit hard by the economic crisis, it’s no surprise that all aspects of executive pay programs are being scrutinized.”
Included in that review are long-term incentives. Almost one in four companies (23 percent) expect the dollar value of their long-term incentive grants to decrease in the next year, most likely as a consequence of the recent fall in the equities market. In terms of other long-term compensation vehicles, companies are putting less emphasis on stock options and relying more on performance-based restricted stock in the coming year.
The Recession Is Leading Companies to Reduce Executives’ Pay Packages
The survey also found that nearly one in four companies (24 percent) has frozen or expects to freeze executive salaries within the next year, and four in 10 (39 percent) have decreased or expect to decrease planned merit increases. More than one in five companies (21 percent) has reduced or plans to reduce perquisites, while 14 percent have added or plan to add clawbacks.
“It’s a challenge to provide meaningful incentive opportunities in the current environment,” said Andrew Goldstein, North American co-leader of executive compensation consulting at Watson Wyatt. “Companies face a difficult balancing act – reducing pay programs in response to a very challenging economy, while continuing to retain and motivate key executives.”
Other survey findings include:
One in 10 companies (9 percent) has added, or expects to add, a special retention bonus. An additional 21 percent are considering doing so.
Twenty-nine percent of companies expect to change the performance metrics of their annual bonus plan.
Companies are expecting a 2009 merit increase pool of 3 percent – a drop of 25 percent from last year.
For more information, visit www.watsonwyatt.com/ExecCompReport.
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 7,600 associates in 32 countries and is located on the Web at www.watsonwyatt.com.
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