Annual Bonus and Stock-Based Awards Expected to be Down in 2009
Nov. 20, 2008 — No one is exempt from the market downturn. A new survey finds that companies expect annual bonus and stock-based awards for executives to decline.
Nearly nine out of 10 respondents in the survey of 400 board members, executives and human resources professionals said the current market turmoil will affect their decisions about executive compensation during the next six months; nearly one-fifth predicted the impact will be significant.
The Pearl Meyer & Partners survey asked participants to comment on their year-end pay decisions and provide insight into their compensation planning for 2009. Half of respondents said they expect salary growth to be lower in 2009 than it was in 2008; nearly 18% said their company is strongly considering a salary freeze.
“It’s appropriate that variable components of pay such as annual bonus awards and stock grants are being put at risk in executive pay programs – that is how pay for performance is supposed to work,” said David Swinford, president and CEO of Pearl Meyer & Partners. “The open question is whether the reductions will be in line with the expectations of shareholders who are feeling the pain in their own portfolios.”
Other survey findings:
36% of respondents said they may consider paying a year-end bonus below formula
More than half of respondents anticipate a decline in the value of this year’s long-term incentive awards; 23% said values will be considerably lower
One-fifth of respondents expect to revise their companies’ severance or change-in-control arrangements during the next 12 months
57% of board members (compared to 49% of other respondents) predicted lower base salary increases; 41% of board members (compared to 36% of other respondents) are considering a salary freeze; 32% of board members (compared to 17% of other respondents) expect changes to their executive severance programs
Pearl Meyer & Partners conducted the Executive Pay in the New Economy survey from late October to early November 2008 to determine what executive pay program modifications were being contemplated by boards, executives, and human resource professionals in light of recent market turmoil. The 410 respondents to the survey represented 371 organizations across a broad range of industries and ownership structures and included 80 outside directors and 330 employees of the firm.