Financial turmoil prompts executive remuneration review

Nearly 50 per cent of companies surveyed by consultants Watson Wyatt are reviewing their executive remuneration policy and philosophy because of the current financial and economic turmoil.

Companies say they are concerned that the design of their current short-term and long-term performance incentives will not provide the right motivation and reward for executives during a sustained economic downturn.

The Watson Wyatt survey found that:

  • Base salary rises are more likely to be in line with the norm for other employees in 2009. (In recent years they have been significantly higher.)

  • Annual bonuses are being changed to reflect the new economic reality in terms of targets. Those companies most affected by the economic situation are the most likely to be considering what performance measures to use.

  • Long-term incentives are being managed conservatively. There are few signs yet that remuneration committees are changing the calibration of performance targets, or exercising discretion to allow plans that have failed their performance conditions to vest. However, there is concern about the performance conditions in long-term incentives and several companies will be re-examining this for 2009.

“There is no sign of a rush to make significant changes to executive packages or to override existing performance tests in short-term and long-term incentives,” said John Pymm, European head of executive reward at Watson Wyatt.

“Nonetheless, there is a desire to maintain pay packages that will reward executives for achievement of stretching targets in a difficult environment, and to hold out the potential for rewards coming through for strong performers in the upturn.”

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