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How does your executive compensation program stack up against the Russell 2000?

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As you monitor your organization’s executive compensation program for competitive positioning and fairness in the eyes of shareholders, investors, other stakeholders and the media, take a reality check of the marketplace with the findings of our proxy survey of the most recent data reported for Russell 2000 executives. The Grant Thornton LLP survey showed that use of performance-based equity is rising significantly with company growth, so-called at-risk compensation is increasing to ensure pay-for-performance linkage, and full-value stock awards with service-based vesting are much more popular in the industrials industry than in the other industries surveyed.

The survey reveals total direct compensation (salary plus annual and long-term incentives) and equity plan-type prevalence (performance equity vs. options vs. full-value stock awards) for executives at public companies in five industries, with grouping by financial category.

Russell 2000 Index constituents are represented in these industries:
  • Energy and utilities
  • Financials
  • Health care
  • Industrials
  • IT

Company size is segmented into three financial categories:
  • Emerging/growth (annual revenues less than $750 million)
  • Midsized (annual revenues between $750 million and $1.5 billion)
  • Stable/mature (annual revenues greater than $1.5 billion)

Total compensation data — base salary, total cash compensation and total direct compensation (total cash plus long-term incentives) — is presented for six positions:
  • CEO
  • CFO
  • The next four highest-paid executive officers

Pay-for-performance, incentive awards and equity compensation vary by company size

Most industries are characterized by increases in at-risk compensation, as companies place more compensation at risk to ensure pay-for-performance linkage. This linkage is critical in public companies — from emerging to mature — with scrutiny by shareholder advisory groups influencing the voting patterns of shareholders and institutional investors.

The use and value of annual incentive and equity compensation increase as company size increases. Median annual incentive awards for CEOs range from 29% to 61% of salary at emerging/growth companies, from 58% to 97% of salary at midsized companies and from 80% to 132% at stable/mature companies.

Similarly, median long-term incentive awards range from 37% to 205% of salary at emerging/growth companies, from 51% to 263% of salary at midsized companies and from 137% to 395% of salary at stable/mature companies.

Nearly all companies have implemented a portfolio of equity-based incentives as their long-term incentive strategy. A typical equity incentive portfolio includes performance-based equity incentives, restricted stock with service-based vesting, and stock options.

As companies grow, they use performance-based equity more significantly. Performance-based equity was offered, on average, to CEOs in emerging/growth companies only 30% of the time and to CEOs in the largest companies 58% of the time. Of those awarding performance-based equity, performance metrics include efficiency ratio, growth in earnings per share and return on assets.

Full-value stock awards with service-based vesting are still highly prevalent in the industrials industry — much more so than in many others. Emerging/growth companies continue to use stock option awards as their most common equity vehicle, and on average, 65% of the largest companies use them, as well.

The survey relates these and other insights, along with percentages and dollar amounts. Get the information your organization needs to ensure an effective executive compensation program. Contact us for data details that allow for comparison of compensation levels in your industry within organizations sized like yours.

Contacts

Eric Myszka
Director, Tax Services
Human Capital Services
+1 312 602 8297

Eric Gonzaga
Principal
Human Capital Services
+1 612 677 5336