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This report summarizes 2018 CEO pay and performance, as well as incentive compensation practices, for CAP’s large Pharma/Biotech sample. The 18 companies in CAP’s large Pharma/Biotech sample represent a mix of U.S. and non-U.S. firms that range in size from $11B to $82B in revenues.

Total direct compensation for the chief executive officers (CEOs) of 18 large, publicly traded Pharmaceutical and Biotechnology companies increased four percent in 2018, according to a Compensation Advisory Partners (CAP) analysis of 2019 public disclosures. Larger annual incentive payouts drove the increase in CEO total direct compensation for 2018. The CEOs received increased annual incentive payouts because their companies delivered consistent revenue growth and strong adjusted earnings per share (EPS) growth.

Key Takeaways

  • Median CEO annual incentive payout was above target for the third year in a row
  • Top-line and bottom-line metrics continue to be the most prevalent metrics in incentive plans. Most companies in the sample include pipeline in the annual incentive plan and all companies include TSR and/or absolute stock price performance in the long-term incentive plan
  • Companies continue to place significant emphasis on performance-based compensation, with more than 85% of pay being variable
  • External market factors will continue to provide challenges to pharma/biotech companies, including industry specific factors such as drug pricing
  • Environmental, Social, and Governance (ESG) issues are an area of interest for many investors; it remains to be seen if and how it will impact executive compensation

2018 Performance

CAP’s Pharma/Biotech sample delivered strong financial results again in 2018. Median revenue for the sample increased five percent, following steady increases of six percent in the last two years. Adjusted EPS (non-GAAP) growth increased more significantly in 2018 (+11%), reflecting continued strong performance. The sample overall has had consistent improved financial performance for the last three years.

Year

Median Financial Performance – CAP’s Pharma/Biotech Sample

Median Total Shareholder Return

Revenue Growth

Adjusted EPS Growth

CAP’s Pharma/Biotech Sample

S&P Global 1200 Index

S&P 500 Index

2016

6%

8%

-7%

11%

15%

2017

6%

7%

10%

20%

21%

2018

5%

11%

1%

-9%

-7%

Total shareholder return (TSR) has been a more volatile performance metric for the last three years, with 2018 market performance much weaker compared to 2017. While median TSR for CAP’s Pharma/Biotech sample was lower in 2018 vs 2017, the industry outperformed both the S&P 1200 Global Index and the S&P 500 Index. External factors, including tax reform, certainly gave a boost to 2017 market performance. 2018 performance for the industry continues to be impacted by public scrutiny over drug pricing practices, as well as drug pipeline results and expectations.

2018 CEO Pay

Median CEO total direct compensation for CAP’s Pharma/Biotech sample increased four percent for 2018. Total direct compensation includes base salary, which is a fixed element of compensation, plus actual annual and long-term incentive payouts, which are variable and performance-driven elements of compensation.

Fixed compensation saw modest increases (+2%), which was similar to prior years. Actual annual incentive payouts jumped nine percent in 2018. Long-term incentives also saw a modest increase (+3%).

+2%+9%+7%+3%+4%0%2%4%6%8%10%BaseSalaryActualAnnual IncentiveActual Total CashCompensationLong-TermIncentivesActual Total DirectCompensationMedian Change in CEO Actual Compensation by Element - CAP's Large Pharma/Biotech Sample(2017 vs. 2018)

Median annual incentive payouts as a percent of target have been steadily increasing year-over-year, in line with steady positive financial performance. Annual incentive payouts for CEOs in the Pharma/Biotech sample have paid out consistently above target for the past three years.

Among the CEOs in CAP’s Pharma/Biotech sample, the median annual incentive payout for 2018 performance was 137% of target, reflecting an increase of 12 percentage points over the prior year’s median. Payouts at the 75th and 25th percentiles also increased slightly. The spread between top quartile and bottom quartile has generally remained the same over the last three years.

Summary Statistics

CEO Annual Incentive Payouts as a % of Target – CAP's Pharma/Biotech Sample

2016

2017

2018

75th Percentile

149%

154%

166%

Median

119%

125%

137%

25th Percentile

109%

110%

122%

Target Compensation Mix

On average, the vast majority of target total direct compensation for CEOs of large public companies across all industries is delivered in the form of annual and long-term incentives, or variable compensation. Consistent with prior years, CEOs in CAP’s Pharma/Biotech sample receive approximately 90 percent of target compensation in the form of variable pay.

Pay practices differ among U.S. and non-U.S. companies, with non-U.S. companies placing more emphasis on fixed compensation. For non-U.S. companies in CAP’s sample, base salary accounts for approximately 18 percent of target compensation versus only 10 percent at U.S. companies. U.S. companies place significant emphasis on long-term incentives relative to their non-U.S. counterparts.

18%10%12%22%15%17%60%75%71%Non-U.S. CompaniesU.S. CompaniesAll CompaniesCEO Target Compensation Mix - CAP's Large Pharma/Biotech Sample(Average Mix)Base SalaryTarget Annual IncentiveLong-Term IncentivesVariable Compensation: 88% Variable Compensation: 90% Variable Compensation: 82%

Annual Incentive Performance Metrics

Companies in CAP’s Pharma/Biotech sample continue to focus on growth and profitability in the short-term, as evidenced by the two most prevalent financial performance metrics in annual incentive plans – revenue and earnings per share (EPS). For CEOs in the sample, individual performance is also considered in the determination of annual incentive payouts.

Strategic measures – in particular those focusing on the drug pipeline – are common among companies in our sample. Pipeline milestones across the spectrum of the research and development (R&D) lifecycle are important considerations for pharmaceutical and biotechnology as they race to advance life-enhancing therapies in the market. Other strategic metrics focus on business development, commercialization, and other organizational goals.

Corporate environmental, social, and governance (ESG) issues have been a hot topic in recent times for the media and investors. In our experience, organizations and boards have mixed views regarding the inclusion of ESG goals in their incentive plans. When an ESG goal is included as a measure, it is often incorporated with a relatively low weighting (10% or less) or considered within individual goals. In CAP’s Pharma/Biotech sample, one company (Novartis) discloses the use of corporate responsibility and environmental sustainability goals within its strategic objectives.

69%69%75%38%31%0%25%50%75%100%SalesPipelineNetIncome/EPSOther StrategicCash FlowAnnual Incentive Performance Metrics - CAP's Large Pharma/Biotech Sample(Prevalence)

Long-Term Incentive Vehicles & Mix

Long-term incentives comprise the largest part of compensation for CEOs in CAP’s sample (approximately 70%, on average). These awards tie executive compensation to longer-term company performance objectives and are typically delivered through equity with multi-year vesting periods.

Long-term incentive vehicles fall into three broad categories: (1) time-vested restricted stock shares (or units); (2) time-vested stock options (or stock appreciation rights); and (3) long-term performance plans. Performance plans can include performance shares (or units), performance-vested stock options, and performance-based cash compensation with multi-year performance criteria.

Among large public companies across industries, performance plans are the most common vehicle for delivering long-term incentives to the CEO. The same is true for CAP’s Pharma/Biotech sample. Of the companies in our sample, performance plans comprise almost three-quarters of the total long-term incentive mix, on average. About a third of companies use performance plans exclusively as their only long-term incentive vehicle.

8%8%22%23%70%69%20172018CEO Long-Term Incentive Mix - CAP's Large Pharma/Biotech Sample(Average Mix)Restricted SharesStock OptionsPerformance Plan
33%28%28%6%6%0%10%20%30%40%50%Performance PlanPerformance Plan+Stock OptionsPerformance Plan+Stock Options+Restricted SharesPerformance Plan+Restricted SharesPerformance Plan+Stock OptionsLong-Term Incentive Vehicle Combinations - CAP's Sample(Prevalence)

Long-Term Incentive Performance Metrics

Long-term incentives generally focus on and reward value creation over a three-to-five-year timeframe. In our sample, all companies with a performance plan use either relative total shareholder return (TSR) or absolute stock price as a metric. Approximately one-third of the companies in CAP’s sample use relative TSR as a modifier to performance results.

Similar to annual incentives, long-term performance plans use growth and profitability financial metrics. The most prevalent metrics include net income/EPS, sales, and cash-flow measures.

100%53%53%35%12%0%25%50%75%100%TSR/Share PriceNetIncome/EPSSalesCash FlowOperatingIncome/EBITLong-Term Incentive Performance Metrics - CAP's Sample(Prevalence)

Additional Information – Shareholder Proposals around Drug Pricing

Pharmaceutical companies have faced increased scrutiny by regulators over the last couple of years, especially around the issue of drug pricing. A handful of companies in our sample have received shareholder proposals around drug pricing and tying executive compensation to the drug-pricing process. These proposals are asking for increased disclosure on how drug pricing strategies impact executive compensation. Five pharmaceutical/biotechnology companies included this proposal in their 2019 proxy statements, with these proposals generally receiving 20 percent to 30 percent shareholder support.

Looking Ahead

2019 opened with two notable acquisitions within the industry (Bristol-Meyers/Celgene and Eli Lilly/Loxo Oncology). While the pharmaceutical/biotechnology industry is relatively compact already, consolidation may continue in the future as companies struggle with combating high R&D costs and uncertain pipeline success rates. More companies will have drugs coming off patent in the next few years, leading to more generic drug competition. With increased pressure surrounding high drug prices in the market and regulators becoming more cautious in approving new and innovative treatments, pharmaceutical/biotechnology companies will have increased pressure to maintain a successful pipeline.

Median first quarter total shareholder return for CAP’s Pharma/Biotech sample was six percent, trailing both the S&P Global 1200 (12%) and the S&P 500 (15%) Indices. We expect companies and compensation committees to continue to align CEO payouts with overall performance.

The Large Pharma/Biotech sample continues to show consistency in incentive plan design, with the different companies having similar strategic priorities. ESG issues will continue to be an area of focus, but we do not believe it will become a primary driver of incentive payouts. Companies and compensation committees will continue to evaluate their incentive plan designs to ensure alignment with organizational priorities, while considering market and regulatory developments.

For questions or more information, please contact:

Kelly Malafis, Partner
kelly.malafis@capartners.com 212-921-9357

Joanna Czyzewski, Associate
joanna.czyzewski@capartners.com 646-486-9746

Diane Lee and Joshua Hovden provided research assistance for this report.


CAP’s Pharma/Biotech Sample:

  • AbbVie Inc.
  • Allergan plc
  • Amgen Inc.
  • AstraZeneca PLC
  • Biogen Inc.
  • Bristol-Myers Squibb Company
  • Celgene Corporation
  • Eli Lilly and Company
  • Gilead Sciences, Inc.
  • GlaxoSmithKline plc
  • Johnson & Johnson
  • Merck & Co., Inc.
  • Mylan N.V.
  • Novartis AG
  • Pfizer Inc.
  • Roche Holding AG
  • Sanofi
  • Teva Pharmaceutical Industries Limited

Compensation Advisory Partners (CAP) conducted a study of executive compensation levels and design practices in the banking industry. The study includes 19 U.S. banks with greater than $50 billion in assets across three different groups: Money Center banks (n=4), Custody banks (n=3), and Super Regional banks (n=12). This report summarizes the findings of CAP’s study and identifies other hot topics in executive compensation affecting the banking industry.

Key Takeaways

  • Pay and performance: 2018 performance was mixed. Pre- and post-tax earnings growth improved over the prior period, while revenue growth and total shareholder return (TSR) were weaker. Chief executive officer (CEO) compensation generally aligns with these results, with CEO pay increasing in 2018, but to a lesser degree than in 2017.
  • Compensation program design: In recent years, executive incentive plan design among banks in this group has been stable. Earnings per share (EPS) is the most common short-term incentive metric and return on tangible common equity (ROTCE) is the most common long-term incentive metric. Stock options continue to be less common among banks than among companies in other industries.
  • Looking ahead: Diversity and inclusion and gender pay equity, the adoption of the new credit loss measurement standard, and regulators’ intentions to finalize Dodd-Frank rules governing incentive compensation at banks are some of the key issues that compensation and human resources committees of banks will need to consider in the second half of 2019 and beyond.

2018 Pay and Performance Outcomes

2018 was a mixed performance year for the banks in CAP’s study. EPS and net income both grew significantly, due in large part to the reduction in the corporate tax rate under the Tax Cuts and Jobs Act of 2017. Operating income growth was also up in 2018, indicating that strong operating results also played a part in the increases in EPS and net income. At the same time, revenue growth in 2018 was slightly lower than revenue growth during the prior year. TSR declined for the one-year period that ended December 31, 2018, consistent with the overall market. In addition, TSR was lower for the three-year period that ended December 31, 2018, than for the prior three-year period that ended December 31, 2017. The chart below summarizes median performance results for the banks in CAP’s study:

Metric

Median Percent Change

Year Ended December 31, 2017

Year Ended December 31, 2018

EPS

+14.0%

+31.7%

Net Income

+15.3%

+25.9%

Pre-tax Operating Income

+9.6%

+13.4%

Revenue

+7.0%

+5.4%

1-Year TSR

+19.3%

-18.3%

3-Year TSR (Cumulative)

+57.1%

+25.3%

Source: S&P Capital IQ Financial Database.

In 2018, total direct compensation, including base salary, annual cash bonus, and awarded long-term incentives, among CEOs increased 7.8 percent versus 2017 at median. This is a smaller increase than in 2017 when total direct compensation for CEOs increased 11.1 percent at median. The smaller increase in 2018 is primarily due to changes in annual cash bonuses, which were mixed among this group and resulted in an increase of 1.5 percent at median. This is a shift from the period from the prior year when nearly all banks in CAP’s sample increased CEO bonuses, and the median increase was 16.3 percent. The chart below summarizes median changes in CEO pay for the group:

Element

Median Percent Change for CEOs

Year Ended December 31, 2017

Year Ended December 31, 2018

Base Salary

No Change

No Change

Annual Cash Bonus

+16.3%

+1.5%

Awarded Long-term Incentive

+7.0%

+6.5%

Awarded Total Incentive

+12.7%

+7.8%

Total Direct Compensation

+11.1%

+7.8%

Compensation and benefits expense increased approximately three to four percent at median on an absolute basis in 2017 and 2018 but stayed relatively flat as a percentage of revenue. In addition, compensation and benefits expense declined as a percentage of net income, likely due to tax reform.

Median Compensation and Benefts Expense35.4%160.4%33.8%139.7%34.1%106.9%0%20%40%60%80%100%120%140%160%180%201620172018As % of RevenueAs % of Net Income

Executive Compensation Program Design

Incentive Compensation Model

The banking industry is different from other industries in that some banks determine a total incentive award based on annual performance and then allocate the total incentive between annual cash bonus and long-term incentive awards (e.g., the total incentive award for the year is delivered 40 percent through an annual cash bonus and 60 percent through long-term incentives). One-third of the banks in CAP’s study use this approach. The remaining two-thirds make separate decisions for the annual cash bonus and long-term incentive awards, which is consistent with general industry practices.

Short-term Incentive Plan

Short-term incentive plans in the banking industry tend to be more discretionary than in other industries. Of the companies in CAP’s study, 47 percent have primarily discretionary short-term incentive plans.

The remaining 53 percent of companies maintain more formulaic short-term incentive plans that pay out, at least in part, based on financial results relative to pre-established “threshold”, “target”, and “maximum” goals. These plans most often provide for a payout of 200 percent of target for “maximum” performance or better, though several companies provide maximum opportunities of less than 200 percent of target, and one company provides a maximum opportunity of greater than 200 percent of target.

EPS is the most common financial metric across these short-term plans. Companies also use Efficiency Ratio, return on assets (ROA), and ROTCE, but they are less common in short-term plans. Most companies measure annual performance against absolute performance goals; however, several companies include a relative performance component.

90%40%30%30%20%100%40%10%10%0%10%20%30%40%50%60%70%80%90%100%EPSEfficiency RatioROEROAPre-Provision Net RevenuePre-tax / Operating IncomeNet IncomeAbsoluteRelative

Note: Percentages do not add to 100 percent due to some companies using multiple metrics.

Long-Term Incentive Plan

Long-term incentive programs among companies in CAP’s study are most often composed of time-based restricted stock or units and long-term performance plans (e.g., performance share units). Only 26 percent of banks in the study use stock options, making them less common among this group than in the broader market. Companies tend to weight long-term performance plans as at least 50 percent of the target total long-term incentive award. Of the companies in the study, 11 percent use long-term performance plans as their only long-term incentive vehicle. The chart below outlines the average long-term incentive mix across companies in CAP’s study:

14%5%51%65%35%30%64%36%Banks with All Three Vehicles (n=5)All Banks (n=19)Average Long-term Incentive MixLong-term Performance PlanTime-based Restricted Stock/Units Stock Options

Note: Two companies use long-term performance plans as their only long-term incentive vehicle and one company uses a long-term performance plan and stock options.

84 percent of the banks in CAP’s study use return on equity (ROE) or a variant of that measure as a metric in their long-term performance plans. Variants of ROE include ROTCE and return on common equity (ROCE). ROTCE is the most common of these variants. Relative TSR and EPS are also common long-term performance plan metrics.

68 percent of companies use at least one relative metric in their long-term performance plans. Specifically, nearly all Super Regional banks use relative metrics in their long-term performance plans. In other industries, relative metrics are typically limited to TSR; however, the banks in CAP’s study also use relative financial measures, including relative ROE variants, EPS growth, and ROA. This is likely due to the significant degree of comparability between the Super Regional banks in CAP’s study.

47%32%32%26%21%100%68%16%11%0%10%20%30%40%50%60%70%80%90%100%ROTCETSRROEEPSROAPre-tax / Operating Income / MarginROCE5%5%Book Value5%RevenueEfficiency RatioAbsoluteRelativePrevalence of Long-term Incentive Metrics (n=19)

Note: Percentages do not add to 100 percent due to some companies using multiple metrics.

Among banks, long-term performance plans most often have maximum payout opportunities of 150 percent of target. In the broader market, most long-term performance plans have maximum payout opportunities of 200 percent of target. Maximum opportunities tend to be lower at banks due, in part, to regulatory guidance to limit upside leverage in incentive plans to avoid encouraging imprudent risk-taking.

Stock Ownership Guidelines and Holding Requirements

In recent years, practices around stock ownership guidelines and holding requirements have generally been stable. All of the banks in CAP’s study have ownership guidelines and/or holding requirements.

89 percent of companies maintain stock ownership guidelines. Most companies express the guideline as a multiple of salary. The most common guidelines are 6x base salary for CEOs and 3x base salary for other NEOs, though several companies maintain higher guidelines.

3%3%35%47%18%44%56%Greater than 6Less than 66xGreater than 33x

Note: Guidelines that are not a multiple of salary have been converted to an implied multiple of salary in the charts above.

In the years following the 2008 financial crisis, several banks in CAP’s study, including the Money Center banks, adopted policies requiring NEOs to hold a portion of the net after-tax shares received from stock vesting or option exercises (“net shares”) until retirement or termination from the company or later. Many thought this trend would catch on throughout the banking industry; however, most smaller banks never adopted such policies. Of the companies in CAP’s study, 42 percent disclose policies of this kind. These policies typically require NEOs to hold 50 percent of net shares until retirement or one-year post-retirement.

Looking Ahead to the Rest of 2019 and Beyond—Hot Topics in Executive Compensation

Diversity and Inclusion and Gender Pay Equity

In recent years, corporate diversity and inclusion have become a main area of focus culturally and for certain institutional shareholders. As a result, compensation and human resources committees are increasingly focusing on gender pay equity and representation at companies across industries. In particular, the financial services industry faces intense public scrutiny around its diversity and inclusion policies and gender pay equity.

This public pressure has only increased in 2019. Earlier this year, Arjuna Capital, an institutional investor that is notably outspoken on this topic, published a gender pay equity scorecard that included several of the banks in CAP’s study. In June, Congresswomen Maxine Waters and Joyce Beatty sent a letter to bank holding companies with assets of greater than $50 billion, requesting information about each institution’s diversity and inclusion data and policies. In 2019, 21 percent of companies in CAP’s analysis included shareholder proposals in their proxy statements requesting that the banks report the median gender pay gap. Though these proposals failed to receive majority support from shareholders, CAP expects that requests for disclosure around diversity and inclusion policies and gender pay equity will continue both in the banking industry and broader market.

Current Expected Credit Loss (CECL) Standard

One key development for 2020 is the implementation of the Financial Accounting Standards Board’s (FASB’s) new credit loss measurement approach, the current expected credit loss (CECL) model, which will impact loan loss reserves. An early announcement from JPMorgan Chase indicates that it expects the change to increase reserves by 35 percent; however, the impact on reserves will vary from bank to bank based, in part, on the makeup of the loan portfolio. The move to the new reporting standard will impact results for profit and return measures and may have an impact on incentive plan goals that were previously set for outstanding long-term performance plan cycles.

Dodd-Frank Rules on Incentive Compensation at Banks

Recently, news outlets have been reporting that regulators plan to finalize the Dodd-Frank rules governing incentive compensation at banks ahead of the 2020 presidential election. While this may seem counterintuitive to the current climate of deregulation, many believe that the current administration aims to finalize the rules to prevent the adoption of more onerous rules under a Democratic administration. If regulators move forward with this agenda item, banks will need to review their current incentive plans and, as necessary, consider adjusting them to comply with the final rules.

Mergers and Acquisitions (M&A) Activity

Early in 2019, BB&T Corporation and SunTrust Banks, Inc. announced that they will merge to create the eighth largest U.S. bank by assets. The combined bank will be called Truist Financial. The industry has not seen a merger of this magnitude since the 2008 financial crisis. The success of this combination could indicate a shift in attitudes around M&A activity between major financial institutions. However, given the regulatory uncertainty heading into the 2020 election, it remains to be seen if this merger will be the first in a series or a one-time event.

Conclusion

Compensation programs among the banks in CAP’s study continue to effectively tie pay outcomes to performance. In recent years, incentive plan designs among these banks have generally been stable.

However, the impending change in regulatory guidance following adoption of final Dodd-Frank rules may cause banks to begin to adjust incentive plan designs, though will likely not result in major changes. Other areas of uncertainty, including the impact of the implementation of the CECL standard, potential for a credit cycle or economic downturn, and uncertainty around the 2020 election, may affect incentive plan goal-setting processes or cause banks to make additional adjustments to executive compensation programs in 2020 and 2021.

For questions or more information, please contact:

Eric Hosken Partner eric.hosken@capartners.com 212-921-9363

Michael Bonner Senior Associate michael.bonner@capartners.com 646-486-9744

Diane Lee and Joshua Hovden provided research assistance for this report.

Banks in CAP’s Study (n=19)

Money Center Banks

  • Bank of America Corporation Citigroup, Inc.
  • JPMorgan Chase & Co.
  • Wells Fargo & Company

Custody Banks

  • The Bank of New York Mellon Corporation Northern Trust Corporation
  • State Street Corporation

Super Regional Banks

  • BB&T Corporation
  • Citizens Financial Group, Inc. Comerica, Inc.
  • Fifth Third Bancorp
  • Huntington Bancshares, Inc.
  • KeyCorp
  • M&T Bank Corporation
  • The PNC Financial Services Group, Inc. Regions Financial Corporation SunTrust Banks, Inc.
  • U.S. Bancorp
  • Zions Bancorporation

Stock price growth? Meeting the business plan? Beating external expectations? Long-term stability? Companies must consider success across multiple fronts, and boards of directors play a role in defining success by working with management to set the strategic plan and by overseeing how the company progresses toward the achievement of the plan.

Incentive plans are foundational to motivating the senior management team to achieve the goals of a company’s strategic plan. Determining how to best measure and reward performance against these goals is key to designing effective incentive compensation programs that ensure proper alignment of pay outcomes with various degrees of suc- cess against the plan.

To determine how board members measure performance and incorporate it in their company’s incentive compensation plans, Corporate Board Member and Compensation Advisory Partners partnered to survey more than 250 public company directors. In this report, we present our findings and share our perspective on these key issues.

Download the PDF to read the full report.

Partner Dan Laddin recently participated in a panel discussion at NACD Leading Minds of Compensation East on executive compensation trends moderated by Christopher Clark, publisher of NACD Directorship

Short-term, cash incentives continue to dominate the incentive-pay landscape at nonprofit/government organizations according to salary and compensation survey research released in May 2018 by WorldatWork in partnership with Vivient Consulting.

“U.S. nonprofit organizations continue to make significant use of short-term cash incentives to motivate and reward employees. Long-term incentive (LTI) use is still a little-used compensation element, but prevalence increased modestly in 2017 and may signal an emerging trend,” said Bonnie Schindler, partner and co-founder of Vivient Consulting.

Additional Key Findings from the WorldatWork-Vivient Survey

Nonprofit/Government Compensation Survey Results:

  • Nonprofit and government organizations favor simplicity by offering a limited number of STI plans. Of the respondents, more than 75% reported having three or fewer STI plans in place.
  • By far, the most common type of STI plan at nonprofit and government organizations continues to be an annual incentive plan (AIP). However, prevalence of AIPs dropped to 77% in 2017 from 86% in 2015

The compensation survey Incentive Pay Practices: Nonprofit/Government was conducted in December 2017 among WorldatWork members. The salary and pay survey is the third edition for nonprofit/government entities with the last report data released in 2015.

Short-term, cash incentives continue to dominate the incentive-pay landscape at private companies according to salary and compensation survey research released in May 2018 by WorldatWork in partnership with Vivient Consulting.

“Spending on short-term incentives (STIs) increased modestly at private companies from 2015 to 2017, which reflects the tight labor market and competition for talent,” said Bonnie Schindler, partner and co-founder of Vivient Consulting.

Additional Key Findings from the WorldatWork-Vivient Survey

Private Company Compensation Survey Results:

  • Spending on STIs increased to 6% of operating profit at median, from 5% in prior years.
  • The prevalence of exempt, salaried employees and nonexempt (salaried or hourly) employees included in annual incentive plans increased in 2017. The biggest jump occurred for nonexempt employees. Approximately two-thirds of nonexempt employees are eligible for annual incentives, up from half in 2015.
  • The majority of respondents consider their annual incentive plans to be only moderately effective, with plan communication, the level of discretion, goal setting and the risk-reward trade-off noted as areas for improvement.

The compensation survey Incentive Pay Practices: Privately Held Companies was conducted in December 2017 among WorldatWork members. The salary and pay survey is the fifth edition of the compensation report produced for privately held companies with the last report data released in 2015.

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