2024 Corporate Governance and Incentive Design Survey

As companies review their executive compensation program designs and related corporate governance policies, it can be helpful to consider current market practices and recent trends in order to inform discussions in the boardroom.

Meridian’s 2024 Corporate Governance and Incentive Design Survey offers comprehensive insights into key executive compensation and corporate governance topics relevant to companies today.

The Survey summarizes market practices at 200 large publicly traded companies across all industries (referred to herein as the “Meridian 200”). These companies have median revenues and market capitalizations of $24.8B and $41.0B, respectively, making them a representative sample of the S&P 500.

All information was gathered from annual proxy statements. Meridian has conducted a similar analysis annually since 2011, with minimal changes to the list of reviewed companies (98% of the 2024 Meridian 200 constituents were reviewed in 2023). This consistency allows us to identify emerging trends. For more details, please refer to the Profile of Survey Companies section.

Highlights of Meridian’s 2024 Corporate Governance & Incentive Design Survey:

Governance Practices and Company Policies

Board Diversity Disclosures are a Universal Practice – All companies (100%) directly address current board diversity (i.e., gender or ethnicity) in their most recent annual proxy statement. All Meridian 200 companies have at least one female board member, with 82% disclosing more than 30% female board members. 97% of companies disclose ethnic diversity statistics for current board membership.

Mandatory Retirement Age Policies are Typical – Similar to last year, 77% of the Meridian 200 companies disclose a mandatory retirement age policy for board members. Most of these companies set the retirement age between 72 and 75, with a recent trend towards the older end of this range.

Independent Board Chair Remains Common – 57% of the Meridian 200 companies maintain a separation between the Board Chair and CEO roles. Among the companies that separate the roles, the majority (70%) appoint an independent director as Board Chair.

Companies Cap Outside Board Seats – Over three-quarters of companies (77%) disclose director overboarding policies. These policies limit the number of public company board seats an incumbent director may hold.

Most Companies Maintain Clawback Provisions Beyond the Dodd-Frank Requirements – In late 2023, NYSE- and Nasdaq-listed companies were required to adopt and implement a Dodd-Frank compliant mandatory clawback policy. 78% of companies choose to maintain policies or provisions that exceed the requirements of the mandatory policy. Companies’ expanded policies feature additional triggers (i.e., beyond financial restatement), cover a broader employee group and/or apply to more elements of compensation.

Proxy Disclosures

Uptick in Compensation-Related Shareholder Proposals; Support Remains Low – In 2024, 24% of companies received at least one compensation-related shareholder proposal, up from 17% of companies in 2023. However, most compensation-related shareholder proposals received limited shareholder support.

Nearly All Companies Engage in Shareholder Outreach – 95% of the Meridian 200 disclose shareholder outreach efforts. 53% of the Meridian 200 provide specific detail on feedback received and/or actions taken as a result of the feedback.

Year 2 of SEC “Pay Versus Performance” Disclosure Closely Resembles Year 1 – With most companies now in the second year of complying with the mandatory pay versus performance disclosure, few companies made material changes to disclosures. Consistent with last year, most companies (81%) elect to compare TSR against an industry specific index and a strong majority of companies (92%) use graphical disclosure to depict the relationship between “compensation actually paid” and performance.

Annual Incentive Plan Design Practices

Earnings Metrics Drive Annual Incentives – 86% of companies include an earnings metric in the annual incentive plan. On average, earnings metrics account for 51% of the overall plan weighting.

Financial Metric Prevalence Remains Consistent – Consistent with previous years, the most prevalent performance metrics are Operating Income, Revenue, Cash Flow and Earnings per Share (EPS).

Non-Financial Measures are also Common; Types of Measures Vary Widely – Most companies (80%) include non-financial measures in the annual incentive plan; this reflects a 10-percentage point increase over 2019 prevalence. 41% of companies include environmental, sustainability or human capital metrics while 46% of companies include other types of operational or strategic corporate goals. Additionally, 41% of companies measure individual performance, either as a weighted metric (19% prevalence) or as a modifier (22% prevalence).

Long-Term Incentive Plan Design Practices

Performance Awards are the Main LTI Vehicle – Nearly all Meridian 200 companies (99%) include performance-based vehicles in the long-term incentive plan. On average, performance awards represent 62% of CEOs’ annual target LTI value.

Standard Performance Period: 3 Years – It is most typical (93%) for Meridian 200 companies to assess performance over a three-year measurement period. Typically, goals are set over the three-year cumulative period, rather than set as individual annual goals.

Relative TSR Remains the Predominant Metric – 78% of companies include a relative TSR measure in performance awards, on average, accounting for 54% of the overall plan weighting. Most companies (62%) incorporate relative TSR as a weighted measure, rather than a modifier, and most (91%) pair TSR with at least one other performance measure.

Link to the full report can be found here.