Executive Pay Expected to Rebound This Year, Towers Watson Survey Finds Survey Also Shows Executive Retention a Growing Concern for Employers July 29, 2010 09:13 AM Eastern Daylight Time   NEW YORK--(EON: Enhanced Online News)--Compensation for executives at large and midsize U.S. companies is expected to rebound modestly this year following two consecutive years of pay declines, according to a new survey by Towers Watson (NYSE, NASDAQ: TW), a global professional services company. Additionally, most companies are planning to fine-tune their executive pay programs to further tighten the link between pay and performance as well as address a growing concern over executive retention. Nearly half (49%) of the 251 companies surveyed expect to increase funding for annual bonuses for executives this year, while one-third (33%) either have made or expect to make larger long-term incentive grants (dollar-wise) this year versus last year. However, the survey results suggest that most companies remain cautious about spending. Most (53%) of the companies increasing bonus funding are projecting relatively modest increases of 20% or less, while more than two-thirds (69%) of the companies making larger long-term incentive grants said the dollar value of their grants will increase by 20% or less. “For many companies, the economic recovery brings improved financial performance and greater flexibility to pay larger annual bonuses and long-term incentives grants,” said Doug Friske, head of executive compensation consulting at Towers Watson. “However, the survey findings also reflect the unevenness of the recovery and underscore the fact that many companies continue to struggle to regain momentum in a challenging environment.”  The survey found that companies plan to fine-tune their executive pay programs, and particularly their incentive plans, in the wake of continuing pressure to better align their programs with business performance. Nearly two-thirds of respondents (66%) reported making some change to their annual incentive programs this year, while just over one-half (54%) made or expect to make revisions to their long-term incentive plans. The most common revisions made to incentive plans were to change performance metrics or increase performance goals. Additionally, the most common shift among performance metrics was to place greater emphasis on profit measures and revenue growth. “Clearly, most companies are taking a thoughtful and cautious approach rather than making wholesale changes to their executive pay programs,” said Andy Goldstein, leader of Towers Watson’s executive compensation practice in the central region of the U.S. “In fact, most of the changes we are seeing are consistent with compensation committees’ continuing focus on pay for performance as well as on mitigating compensation risk and their growing need to exercise greater discretion to ensure appropriate pay results.”  More Attention on Executive Retention, Less on Perquisites The Towers Watson survey also confirms that companies are paying much more attention to executive retention issues during the economic recovery. In fact, only one in 10 companies reported that executive retention is not an issue for their company. At the same time, and despite shareholder pressure, relatively few companies are making significant changes to other executive pay elements that could heighten retention risk, including employment agreements, golden parachutes, supplemental executive retirement plans and other nonperformance-based compensation. Similarly, about one in three respondents (37%) have eliminated or reduced executive perquisites in the past two years, continuing an ongoing trend of companies rationalizing all forms of compensation not directly linked to performance. Furthermore, nearly two-thirds (63%) of companies that reduced perquisites in the past two years did not replace the lost value to executives, reflecting overall negative sentiment toward perquisites and the pressure to reduce costs during a time of weakened profits. “Most corporate executives took a financial hit in both 2008 and 2009, but with the economy and labor markets showing signs of improving, companies are now facing another challenge -- holding onto talented executives. As a result, companies will continue to adjust their pay programs to not only address executive retention but also to further strengthen the link between executive pay and performance,” said Goldstein. About the Survey The Towers Watson Executive Compensation Flash Survey was conducted online in June 2010 and is based on responses from 251 publicly traded and privately held corporations in the United States representing a cross section of industries. Additional information can be found at: www.towerswatson.com/united-states/research/2473. About Towers Watson Towers Watson (NYSE, NASDAQ: TW) is a leading global professional services company that helps organizations improve performance through effective people, risk and financial management. The company offers solutions in the areas of employee benefits, talent management, rewards, and risk and capital management. Towers Watson has 14,000 associates around the world and is located on the web at towerswatson.com. Contacts Towers Watson Media Contacts: Ed Emerman, +1-609-275-5162 eemerman@eaglepr.com or Whitney Kuhn, +1-703-258-7648 whitney.kuhn@towerswatson.com Permalink: http://eon.businesswire.com/news/eon/20100729005300/en