Meridian Compensation Partners has issued its twelfth annual Corporate Governance and Incentive Design Survey.
The Survey covers key board governance practices, compensation-related proxy disclosures, and annual and long-term incentive design practices of 200 large cap companies (“Meridian 200”)¹.
■ Focus on Corporate Responsibility, Sustainability and Climate. 83% of the Meridian 200 disclose internal tracking of long-term sustainability or climate change goals. Additionally, 88% reference their Corporate Responsibility Report in their most recent proxy.
■ Increasing Board Diversity. Almost all (98%) directly address current board diversity (i.e., gender or ethnicity) in their most recent proxy filing. All Meridian 200 companies have at least one female board member, with 65% disclosing more than 30% female board members. Additionally, 91% disclose ethnic diversity statistics for current board membership.
■ Mandatory Retirement Age is Typical. 78% of the Meridian 200 disclose a mandatory age policy for board members, with nearly all defining the retirement age between 72 and 75, with a gradual shift to the higher end of this age range in recent years.
■ Independent Board Chair Remains Common. 55% of the Meridian 200 continue to separate the Board Chair (CoB) and CEO role. Of those companies that separate the roles, most (72%) elect an independent director as CoB.
■ Lead Director Pay Continues to Increase. Of the Meridian 200 that pay additional fees to Lead Directors, 58% pay between $30,000-$50,000.
■ Compensation-Related Shareholder Proposals in 2022. Only 11% of Meridian 200 companies’ 2022 proxies included compensation-related shareholder proposal. Of these proposals, the most prevalent is related to pay disparity between executives and other employees (18%). Most compensation-related shareholder proposals received limited shareholder support.
■ Growing Shareholder Outreach. Nearly all (93%) of the Meridian 200 disclosed shareholder outreach efforts in 2022, with 52% providing specific detail on feedback received, number or percentage of major institutional investors that were contacted and/or actions taken.
■ Recoupment/Clawback Policy Disclosure. It is almost a universal practice among the Meridian 200 to disclose details regarding their recoupment/clawback policy.
Annual Incentive Plan Design Practices
■ As in previous years, the most prevalent performance metrics continue to be Operating Income, Revenue, Cash Flow and Earnings per Share (EPS).
■ The use of corporate/strategic goals increased to 57% in 2022. This is primarily due to an increase in companies adding Environmental, Social and Governance (“ESG”) metrics to their short-term plans.
― 39% of the Meridian 200 include ESG metrics as a corporate performance metric in their annual incentive plans, with additional use of ESG metrics in the individual performance element of annual incentive programs. Note: For purposes of this survey, ESG includes safety, environmental, diversity inclusion metrics and employee engagement, but does not include other operational metrics such as customer satisfaction.
Long-Term Incentive Plan Design and Vehicle Mix Practices
■ 97% of the Meridian 200 continue to grant performance-based vehicles as part of their long-term incentive plans (most often Performance Share Units or PSUs), with performance most often measured over a multiyear period (typically 3 years).
■ The average mix of LTI awards for CEOs remains unchanged from 2021, with the majority of LTI mix delivered in performance-based shares/units (61%) and the remainder in time-vested shares (22%) and stock options (17%).
■ Relative Total Shareholder Return (rTSR) continues to be the most prevalent (76%) metric in performancebased LTI plans with over 40% using it as a payout modifier versus a weighted component (61% prevalence).
Following are statistics for the Meridian 200. All figures shown are as of the end of fiscal year 2021.
¹The Meridian 200 is a representative sample of the S&P 500.
Full survey results can be downloaded by clicking the “download this insight as PDF” button. 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.
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The Client Update is prepared by Meridian Compensation Partners’ Governance and Regulatory Team led by Donald Kalfen. Questions regarding this Client Update or 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.