CAP Partners Bertha Masuda and Susan Schroeder discuss long-term incentives for executives working in family businesses.

CAP Partners Bertha Masuda and Susan Schroeder talking about how to compensate family members working in the business.

CAP Partners Bertha Masuda and Susan Schroeder talking about establishing a compensation philosophy for a private company.

Bertha Masuda and Bonnie Schindler discussing the use of ESG metrics in private companies.

Bonnie Schindler and Susan Schroeder discussing the Executive Chairman role and its use in Succession Planning for private companies.

One of the surest signs of spring — perhaps more so in our variable-weather world than flowers budding and geese flying north — is the onslaught of news stories about executive pay packages. Each spring, public companies release compensation data for the top five named executive officers, and the news stories quickly follow. Who is the highest paid CEO? Is pay really linked with company performance? Whose equity grants are worth the most? While public companies occupy the limelight and set the standard for what people think about executive pay, the number of United States-based public companies have declined to about 3,600. Private companies and nonprofits outnumber their publicly-traded peers, and offer compelling executive pay packages without fanfare and without publicly-traded stock. While the lack of publicly-traded stock creates challenges, particularly with regard to long-term incentives (LTIs), private companies and nonprofits can use a number of strategies to develop thoughtful and creative executive pay programs, and deliver competitive compensation.

Originally published in the June/July 2020 edition of WorldAtWork’s WorkSpan magazine.
The full article can be viewed in the PDF download.

Short-term incentives (STIs) have become nearly universal at private companies to align pay with short-term performance, according to a recent survey by CAP and WorldatWork. “2019 Incentive Pay Practices: Privately Held Companies” found that STI prevalence reached 99 percent in 2019, up from 96 percent in 2017 and 94 percent in 2015.

Other key survey takeaways include:

• Spending on STIs increased to 6.5 percent of operating profit at median in 2019, up from 6 percent in 2017 and 5 percent in prior years.
• The prevalence of Annual Incentive Plans (AIPs) increased to 86 percent in 2019, up from 82 percent in 2017. The prevalence of all other types of STIs (i.e., spot awards, discretionary bonuses, team/small group incentives, project bonuses and profit sharing) fell in 2019. This indicates that firms are consolidating their STI spending on structured AIPs that incorporate companywide financial metrics and other objectives.
• AIP plans continue to be offered across the organization, with two-thirds of organizations providing eligibility to all employees.
• Long-term incentive (LTI) prevalence increased in 2019 to 62 percent. This is up from 54 percent in 2017 and 53 percent in 2015. The increased prevalence reflects that private firms are competing for top talent with publicly traded peers in a tight labor market.
• LTIs continue to be awarded to top management only.

The full results of the private company survey are available to WorldatWork members.