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Companies Make Changes to Exec Pay Plans

Posted by: Jena McGregor on March 17, 2009

Amidst all the brouhaha over the AIG bonuses, it’s worthwhile to note that many companies are actually making changes to their executive pay plans.

Human resources consulting firm Watson Wyatt found in a recent survey that the number of companies that froze salaries and installed “clawback” policies to their executive compensation plans jumped sharply in the past three months. Among the other findings: many companies plan to slash annual bonuses and reduce long-term incentive pay for their top brass.

The survey, which was conducted in the first week of March and queried 145 HR executives, was an update to a December 2008 study. It found that 55% of respondents have frozen salaries, up from 21% in December. Also interesting: While just 1% of respondents were considering re-pricing, exchanging or surrender underwater stock options, fully 16% are now. And while just 9% are reducing bonus target opportunities, that’s up from just 4% in December.

Meanwhile, clawback policies, which attempt to recoup executive pay following earnings restatements or other poor performance, also jumped in number. In March, 23% of respondents said they had added clawback policies, and another 13% said they were considering adding one, up from 13% and 1%, respectively.

Perhaps one reason more companies haven’t made big moves? They may think the shifts to more austere plans are permanent. According to the Watson Wyatt survey, only 40 percent of companies surveyed believe to a great extent (giving a 4 or 5 on a five-point scale) that reductions in salary, bonus and other compensation will later be restored.

Reader Comments

Teoh Yi Chie

March 18, 2009 11:42 AM

Pay them whatever amount they want, BUT HAVE A MONEY BACK GUARANTEE.

Thomas Huynh

March 19, 2009 7:09 AM

Hi Jena, the proposals are probably austere except clawback policies since they are part of the initial agreement -- and it helps to prevent tactics execs use to achieve short-term gains at the expense of long-term company health and growth. I hope it's a permanent way of setting up incentives given past practices. Thomas

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