Executive incentive plans close to target

Good news for advisors dealing with executives—it looks like ongoing market volatility hasn’t affected North American compensation plans.

According to Mercer’s Executive Compensation and Talent Management 2012 Survey, 63% of companies expect their annual incentive plans to fund at or above target levels for 2011 performance.

The survey asked more than 280 Canadian and U.S. organizations how they are addressing annual incentive payouts, changes to annual and long-term incentive programs and expected long-term grants for 2012.

While some companies reported making changes to performance measures, the majority said they are stabilizing their annual and long-term incentive programs. Only about one-quarter (26%) said they anticipate changing the weighting of performance measures in annual incentive plans; 24% said they plan to change the measures used in performance-based long-term incentive plans.

“As a result of the ongoing global economic uncertainty, companies are still cautious about making significant changes to their executive compensation programs,” said Audrey O’Connell, principal in Mercer’s talent, rewards and communication business.

Of the 74% of respondents that had some clarity on what 2012 long-term incentive grant levels might be, 70% anticipate that grant values in 2012 will be equivalent to 2011 values. Additionally, of the 63% of companies that reported on run rate expectations, 60% anticipate 2012 run rates will be about the same as 2011.

The most notable change for long-term incentive rewards—reflecting a continuing trend—is an increase in the weighting of performance share units for executives, with 10% of companies planning to increase the weighting.

The most prevalent changes companies are considering include the differentiation of grant sizes based on individual performance (29% of companies are planning this change for executives and 25% for non-executives) and, for performance-based long-term incentives, increasing the weighting of absolute performance measures (12% of organizations).