REDWOOD CITY, CA (April 16, 2020)—Over the last five years, compensation committees have consistently found that a three-year performance period is most effective in the design of executive long-term incentive plans (LTIPs), according to a new Equilar report, Executive Long-Term Incentive Plans, which features commentary from E*TRADE Financial Corporate Services, Inc.
Across Equilar 500 companies—a sample of the largest public companies as measured by revenue—the percentage of companies that used a three-year performance period in their NEO LTIPs rose by 16.8% since 2015.
“In terms of performance periods, the compensation committee must find a way to ensure longevity in results, without alienating executives with too long of a period before they get their own results,” said Daniella Gama-Diaz, Lead Author of the report.
Of course, several other factors play a critical role in plan design, particularly metric selection. “It’s important to consider how the metrics we measure executives against can help drive long-term growth while remaining adaptable,” said Craig Rubino, Head of Client and Participant Engagement at E*TRADE Corporate Services, Inc. “To strike this balance of strategic short-term agility and long-term growth, many companies might opt for a three-year timeframe for pay for performance.”
As companies continue to confront the COVID-19 crisis, adjustments to executive pay plans will be expected to increase in prevalence. The report highlights some examples of adjustments companies have either made or plan to make to executive incentive plans amid the pandemic.
Other key findings from the report include:
In 2019, relative total shareholder return (rTSR) was once again the most prevalent CEO LTIP performance metric at Equilar 500 companies.
Operating profit was the most likely metric to stand alone as 100% of the metric weighting. TSR most commonly made up 50% of an award’s weighting.
The most prevalent threshold, associated with 22 metrics, required NEOs to reach between 91% and 99% of their performance target.
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For further discussion and details on this topic, please join Equilar, E*TRADE Corporate Services, Inc., BlackRock and the Center On Executive Compensation for a for a webinar on April 21. Registration is now open.
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About the Report
Executive Long-Term Incentive Plans, an Equilar publication, examines trends in incentive plan design at Equilar 500 companies over the last five fiscal years. The report analyzes performance metrics and periods associated with long-term awards granted to NEOs, particularly CEOs and CFOs. E*TRADE Corporate Services provided independent commentary on the structure of incentive plan design, particularly in light of the current environment.
Equilar is the leading provider of Board Intelligence Solutions. Its data-driven platforms, BoardEdge and Insight, provide tools for board recruiting, business development, executive compensation and shareholder engagement. Companies of all sizes, including 70% of the Fortune 500 and institutional investors representing over $20 trillion in assets, rely on Equilar for their most important boardroom decisions. Equilar also hosts industry-leading board education symposiums, conducts comprehensive custom research services and publishes award-winning thought leadership. Founded in 2000, Equilar is cited regularly by Associated Press, Bloomberg, CNBC, The New York Times, The Wall Street Journal and other leading media outlets. Visit www.equilar.com to learn more.
About E*TRADE Financial Corporate Services, Inc.
E*TRADE Financial Corporate Services, Inc. (“E*TRADE”) is a premier provider of equity compensation management tools for some of the nation’s top companies, serving 2 million+ participants. We offer flexible, easy-to-use, & powerful solutions for complete equity compensation management, including support for most equity vehicles and& seamless access to stock plan participant services / education from E*TRADE Securities. The E*TRADE Financial family of companies provides financial services, including trading, investing, banking, and managing employee stock and financial wellness benefit plans. https://us.etrade.com/corporate-services
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