Risk. Reinsurance. Human Resources. Aon Hewitt Talent, Rewards & Performance In spring 2016, Aon Hewitt conducted its annual Hot Topics in Executive Compensation survey of 224 organizations to find out what concerns they have about long-term incentives. Nearly 85% of a CEO’s total pay can come from long-term incentives, so it’s no surprise that 38% of respondents are reviewing aspects of their LTI programs. This report highlights the top plan design elements under review as well as some LTI plan features in use today. 2016 Trends in Long-Term Incentives Eligibility Levels Payout Opportunities Vehicle use Performance Measures Performance Leverage Top Areas of Review *Statistics may exceed 100% due to multiple responses. Area Actions Considered Vehicle Use 92% to deliver more value through performance-based vehicles as opposed to pure time-based vehicles Eligibility Levels 56% to limit eligibility, while 44% may look to expand it Performance Measures 65% may expand the number of performance measures used, while 25% may look to decrease the current number used Payout Opportunities 55% may increase target award opportunities. 30% may increase maximum award opportunities. Performance Leverage Factors 64% may review minimum performance levels used to trigger minimum payout opportunities. 46% may review maximum performance levels used to trigger maximum payout opportunities. 33% 32% 26% 14% 0% 10% 20% 30% 40% 26%
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Risk. Reinsurance. Human Resources.
Aon HewittTalent, Rewards & Performance
In spring 2016, Aon Hewitt conducted its annual Hot Topics in Executive Compensation survey of 224 organizations to fi nd out what concerns they have about long-term incentives. Nearly 85% of a CEO’s total pay can come from long-term incentives, so it’s no surprise that 38% of respondents are reviewing aspects of their LTI programs. This report highlights the top plan design elements under review as well as some LTI plan features in use today.
2016 Trends in Long-Term Incentives
Talent, Rewards & Performance
2016 Trends in
Eligibility Levels
Payout Opportunities
Vehicle use
Performance Measures
Performance Leverage
Top Areas of Review
*Statistics may exceed 100% due to multipleresponses.
Area Actions Considered
Vehicle Use92% to deliver more value through performance-based vehicles as opposed to pure time-based vehicles
Eligibility Levels
56% to limit eligibility, while 44% may look to expand it
PerformanceMeasures
65% may expand the number of performance measures used, while 25% may look to decrease the current number used
PayoutOpportunities
55% may increase target award opportunities.30% may increase maximum award opportunities.
PerformanceLeverageFactors
64% may review minimum performance levels used to trigger minimum payout opportunities.46% may review maximum performance levels used to trigger maximum payout opportunities.
33%
32%
26%
14%
0% 10% 20% 30% 40%
26%
2016 Trends in Long-Term Incentives 2
LTI Vehicle Usage
Performance-based plans are the most frequently used vehicle to deliver long-term incentives at the CEO level and their direct reports. Time-based restricted shares come into play more often for Level 3 executives. Higher-level jobs have greater ability to affect the performance measure.
Our survey found that 67% of companies currently grant long-term incentives globally. Most use the same guidelines for executives, no matter where they are located.
84% of surveyed organizations indicated that they grant CEOs and their direct reports performance-based shares.
74% of the companies surveyed use a uniform policy for granting long-term incentives globally.
30%
15%
33%
45%
External Market Data Specific % of salary, based on level / title
/ grade
Specific dollar value, based on level / title
/ grade
Fixed number of shares, based on
level / title / grade
Global
Globally Differentiated Policy
Globally Uniform Policy
Policy is globally uniform for executives at higher organization levels,and globally differentiated
for other executives
74%
0%
Factors in Grant Determination Determining the size of an overall annual long-term incentive award varies by executive level.
Global Grant Guideline Policy Prevalence
19%
7%
50% 100%
31%
CEO Level 2 Level 3
26% 30
% 32% 35
%
7%
8%8%
2016 Trends in Long-Term Incentives 3
Drivers of Long-Term Incentive Levels
A number of factors can impact the value delivered through long-term incentives. Company performance is typically the most common, but other elements, such as board discretion and economic conditions also play a role.
Drivers of LTI Levels
CEO Level 2 Level 3
Board Discretion
Company Performance Relative to Plan Goals
31%
17%
36%
34%
35%
31%
25%
45%
23%
Economic Conditions
Change in Stock Price over past year
21%
21%
23%
Pressure to Compete 15%
12%
12%
Share Availability 11%
10%
10%
Management Discretion 19%
27%
10%
Shareholder Concerns 5%
2%
5%
25%
Are you among the 38% who are reviewing LTI programs? Check out our Total Compensation Measurement® (TCM) survey data to benchmark all elements of pay. Contact us for more information.
About Aon Aon plc (NYSE:AON) is a leading global provider of risk management, insurance brokerage and reinsurance brokerage, and human resources solutions and outsourcing services. Through its more than 72,000 colleagues worldwide, Aon unites to empower results for clients in over 120 countries via innovative risk and people solutions. For further information on our capabilities and to learn how we empower results for clients, please visit: http://aon.mediaroom.com.
This report was created using data from the 2016 Aon Hewitt Hot Topics in Executive Compensation Survey. For more information about Executive Compensation surveys, data solutions, and consulting services, please contact [email protected].