New Study Examines How Public Companies Measure Executive Performance

May 20, 2019

A new study by Corporate Board Member and Compensation Advisory Partners surveyed 258 public company board members to “determine how board members measure performance and incorporate it in their company’s incentive compensation plans.” The study presents these key findings:

  • When establishing financial objectives, profitability is the highest priority in the near term, while top-line growth takes precedence over the long term;
  • 93 percent of directors surveyed believe that total shareholder return (TSR) has a place in long-term performance plans;
  • 52 percent of directors surveyed believe that diversity and inclusion (D&I) metrics should be incorporated into incentive plans, yet the study also found that fewer than 10 percent of companies currently use formal D&I metrics in their incentive plans;
  • When setting target performance goals, 76 percent of directors surveyed view the company’s internal budget/strategic plan as the most important consideration;
  • 35 percent of directors surveyed believe that companies should exclude the impact of share buybacks; and
  • 64 percent believe that one-time special retention awards are important to attract and retain talent.

The study also examines the impact of the Tax Cuts and Jobs Act of 2017. As previously reported by The Ticker, by eliminating the favorable treatment of performance-based compensation, the tax bill put all forms of compensation, whether performance-based or not, on equal footing from a tax perspective. While the study found some changes in executive compensation programs around the margins (e.g., greater use of time-based restricted stock awards), principles of good governance have prevented dramatic changes to pay practices.

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