Executives could be looking at a bonus well above their company’s target, but according to a new survey, more than a quarter of respondents believe that the mandatory say-on-pay shareholder vote has outlived its usefulness.
More than one-third of U.S. companies (36%) expect to pay annual bonuses for 2016 performance that exceed 110% of target, according to a survey of 260 corporate executives and compensation professionals that was conducted during the Dec. 8 webcast presented by Willis Towers Watson.
According to the survey, 35% of companies plan to pay bonuses at 90% of target or below. The remaining 29% expect to pay annual incentives close to target, according to the findings.
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The Willis Towers Watson survey results reflect a mixed bag in the U.S. economy, says Steve Kline, consulting director, executive compensation for Willis.
“Bonuses in corporate America are hard wired to financial goals and there’s not a lot of latitude to goose it because it was a good year,” says Kline. He adds, “We have been in a pretty low growth economy for a while and goals were not that high. We haven’t seen 10%-15% growth goals [since the recession of 2008]. So, 3% earnings growth isn’t going to cut it in 2017.”
When asked for their opinion of the impact of mandatory say-on-pay voting, 47% of survey respondents held a “very or generally positive view” of the corporate compensation practice. “Interestingly, more than a quarter (29%) said while the Dodd-Frank requirement has been generally positive, it’s probably no longer necessary. Only one in 10 said the voting has had a negative impact, and just 4% favor repealing it,” according to a Willis Towers Watson statement.
That said, don’t count out the say-on-pay provision of Dodd-Frank just yet. “Stock owners have been voting on those for years. Things like clawback rules might never get finalized [with the new congress and White House],” says Kline. “Having said that, investors and investor advisory groups have pressured companies to put in clawback rules. They are saying, ‘Stop waiting for rules, people like them.’”
Kline says that companies are looking for leeway with their own versions of the clawback rule.
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“The issue is anytime you have a rule, you have a very prescriptive rule to comply with it. Companies can and will continue to put in clawbacks, but with more flexibility around the design of the rule rather than around what the proposed rule required. Because for investors, it fundamentally makes sense,” says Kline.
