What to Watch in Executive Pay During 2010

Executive compensation has shown some remarkable trends in the last year and many leading compensation experts (Mercer, Watson Wyatt, WorldatWork, Pearl Meyer & Partners) suggest that executive compensation will be a fundamental compensation and rewards issue in 2010 seeing as 2009 yielded greater governmental oversight and regulation, decreases or no changes to many executives’ base salaries and bonuses, lower rates of long-term incentive usage due to the difficulty of measuring performance, lower pay adjustments (if any) than prior years, increased focus on driving short term incentives focused on business results and sustainability, and reduction in perquisites. Organizations will need to balance these new trends with a continued need to attract and retain key executive talent in order to sustain and grow.

According to a recent study conducted by Pearl Meyer & Partners (Compensation Planning: Looking Ahead in 2010), most organizations seem to be sticking to a pay for performance philosophy for their top people, but relooking at their executive compensation practices – such as base pay, incentive plans, and perquisites/benefits this year.  As a result, we’ve compiled a list of critical executive compensation issues on “what to watch” and benchmark across other organizations in 2010:

Base pay:

  • What executive positions are experiencing decreases, freezes, and/or increases in base salary?
  • Are there any trends in the types of positions experiencing changes (or no changes) to pay?

Base pay increases:

  • What adjustments, if any, are being made to executive base pay?
  • What are the projected increases for executive base pay?

Incentives and bonuses:

  • What types of incentive plans are being used (long-term, short-term)?
  • Are the amounts and/or structures of executive bonus programs changing?
  • Are there any changes in how pay for performance is being measured?

Perquisites and benefits:

  • What perquisites are becoming less commonly offered to executives?
  • Have perquisite and/or benefits practices changed in the last year?

Governmental oversight:

  • What new or up and coming legislation could impact executive compensation practices?
  • Are there any new restrictions or guidelines on pay practices for executives?

As most sources suggest, it will be crucial to stay abreast of the latest trends across the many areas of executive compensation, particularly in 2010.  For information on complimentary resources for ERC members to benchmark executives’ pay practices, please contact ERC at hrhelp@ercnet.org, or participate in our 2010 National Executive Compensation Survey and receive the results for no cost later this spring (contact surveys@ercnet.org for a username and password to complete the survey).

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