Warren Suh and Caroline Cubberly are consultants at FW Cook. This post is based on the Executive Summary of a FW Cook publication by Mr. Suh, Ms. Cubberly, and Edward D. Graskamp.
In 2016, external forces, including Dodd-Frank Act rules, Say-on-Pay and proxy advisors, continue to influence the executive compensation landscape. Meanwhile, internally, major overhaul to long-term incentive plans at large companies over the years have resulted in most plan designs and practices now more closely aligned with a pay-for-performance philosophy. With Say-on-Pay in its sixth year and 94% of the Top 250 already using performance-based awards in their long-term incentive programs, companies are shifting attention to finding the right balance of grant types and performance features that provide meaningful retention and incentivize proper behavior. Nearly 90% of the Top 250 use two or more grant types, and 58% of performance awards feature two or more performance metrics. The prevalence of performance awards increased, coming at the expense of stock options and stock appreciation rights (“SARs”), which have declined notably since 2014. The 2016 Top 250 marks the first time that use of stock options/SARs (60% of Top 250) dips below the use of restricted stock grants (62%).