Community Corner

Governance and Design Survey Highlights  

Executive Summary

As companies continue to review their executive compensation programs and related governance policies, a common starting point in any discussion is the reference to market practices. Indeed, any substantial due diligence, whether prepared for senior management or the Compensation Committee, generally includes the perspective of market “best practices.” This is not to say that we at Meridian believe decisions and the design of executive compensation should be driven by market practices, but rather all parties should be informed by the practices of other leading companies. Each company’s executive compensation program should be tailored to company-specific circumstances and, of course, the business strategy.

The 2011 Corporate Governance & Incentive Design Survey presents Meridian’s findings on a variety of topics related to executive compensation and governance issues facing companies today. Results are reflective of 250 large publicly traded companies across a variety of industries (“Meridian 250”) with median revenues and market capitalization of $12.8B and $12.8B, respectively. All information was sourced from a company’s public disclosures. See Profile of Survey Companies for more information on the survey sample.

Highlights of Meridian’s 2011 Corporate Governance & Incentive Design Survey include:

  • Majority voting for Director elections and de-classified Board structures are a strong and growing majority practice among these leading companies.

  • Approximately one-third of the Meridian 250 currently separates the roles of Chairman of the Board and Chief Executive Officer. However, less than one-quarter of the companies that currently separate the roles have mandated this practice by company policy.

  • Boards continue to refine their leadership structure. Lead Directors are now present at nearly 90% of companies who do not have a separate Chairman of the Board and CEO. Lead Directors receive additional fees at three out of every four companies, reflecting their additional responsibilities.

  • Greater than 90% of companies maintain executive stock ownership guidelines, reinforcing the alignment between executives and shareholders. Typically these guidelines are expressed as a multiple of the executive’s base salary.

  • For annual incentive plans, earnings metrics (e.g., EPS, Operating Income) are by far the most widely used across the sample.

  • Long-term performance-based vehicles (e.g., performance shares/units) are in use at almost 90% of the Meridian 250. Further, the overall high prevalence of stock options and service-based vesting vehicles (e.g., restricted stock/RSUs) indicates widespread use of the “portfolio approach” to LTI grant practices and design.

  • Illustrating the focus on a pay-for-performance culture, performance-based vehicles make up nearly 50% of the annual LTI value granted to senior-most executives. Stock options, which require share price appreciation for any value to be recognized, account for approximately 30% of grant date value, with service-based vesting vehicles (e.g., restricted stock/RSUs) representing the remaining 20%. 


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