The Survey provides current market practices, recent trends and key competitive benchmark data that should assist companies in the review of their executive compensation program designs and related corporate governance policies.
Highlights of Meridian’s 2019 Corporate Governance & Incentive Design Survey
■ Annual Incentive Plan Practices
― The most prevalent performance metrics continue to be Operating Income, Revenue, Cash Flow and Earnings per Share (EPS).
― Individual performance modifiers are used in 25% of annual incentive plans, up slightly from 21% in2018.
■ Long-Term Incentive Plan Practices
― 98% of Meridian 200 companies grant performance-based vehicles as part of their long-term incentive plans (most often PSUs), with cumulative performance measurement (typically 3 years) continuing to be most prevalent (90%).
― The average mix of LTI awards for CEOs is comprised of 60% performance-based full value shares/units; 20% service-vesting full value shares and 20% stock options, which has remained unchanged from 2018. However, other NEOs’ average LTI mix changed slightly year over year with more emphasis on performance-based full value shares/units (59%) and service-vesting full value shares (23%) and less emphasis on stock options (18%).
― Relative Total Shareholder Return (rTSR) continues to be the most prevalent (67%) metric in performance-based LTI plans; however, its use as an individual weighted measure decreased to 75% in 2019 from 82% in 2018, while its use as a payout modifier increased to 26% in 2019 from 22% in 2018.
■ Governance Practices
― Board practices
▪ Declassified board. 92% of Meridian 200 companies elect directors annually (i.e., declassified board).
▪ Board diversity. 87% of Meridian 200 companies directly address current board member diversity in their proxy filing, up from 79% in 2018, a trend we expect to continue.
▪ Skill matrix. 72% of the Meridian 200 companies include a skill matrix in their proxy statement detailing outside directors’ key areas of expertise.
▪ Mandatory retirement age. Prevalence of mandatory retirement age of 72 has decreased to 49% in 2019 from 57% in 2016. In contrast, prevalence of mandatory retirement age of 75 has increased to 35% in 2019 from 24% in 2016.
▪ Board composition. 100% of Meridian 200 companies have at least one female board member; however, over one-half (58%) still continue to have a board makeup that is less than 30% female.
▪ Independent Board Chair. 71% of Meridian 200 companies that separate the Board Chair (CoB) and CEO, elect an independent director as CoB.
■ Other Governance Topics
― Clawback trigger. Ethical misconduct leading to a restatement represents the most prevalent clawback trigger (63%). However, some companies have moved to implement broader clawback provisions.
― Pay ratio. Median CEO Pay Ratio among the Meridian 200 increased to 229:1 in 2019 from 208:1 in 2018.
― Proxy summary. 78% of Meridian 200 companies include a proxy summary, up from 70% in 2018.
― Shareholder outreach. 82% of Meridian 200 companies disclose shareholder outreach efforts, with nearly one-half (46%) providing specific detail on feedback received and/or actions taken.
The table below shows key statistics of the Meridian 200 companies. All figures shown are as of the end of fiscal year 2018.
Full survey results can be downloaded here. This Survey was authored by Carrie Guenther and other consultants of Meridian Compensation Partners, LLC. Questions and comments on the Survey should be directed to Ms. Guenther at firstname.lastname@example.org or (847) 235-3622.
* * * * *
The Client Update is prepared by Meridian Compensation Partners’ Technical Team led by Donald Kalfen. Questions regarding executive compensation technical issues may be directed to Donald Kalfen at 847-235-3605 or email@example.com.
This report is a publication of Meridian Compensation Partners, LLC, provides general information for reference purposes only, and should not be construed as legal or accounting advice or a legal or accounting opinion on any specific fact or circumstances. The information provided herein should be reviewed with appropriate advisors concerning your own situation and issues.