Over two-thirds of companies are paying out 2008 bonuses below targeted levels
CHICAGO, March 9, 2009 - A recent survey of U.S. companies finds that half of companies are freezing executive base salaries in 2009. In addition, another 15 percent are implementing salary reduction programs.
"Companies are expecting 2009 to be a challenging year for business growth and financial stability," said Don Nemerov, a Compensation and Benefits executive director at Grant Thornton LLP. "As they recast business plans for leaner times, this is impacting executive compensation programs dramatically."
In regards to bonuses, 69 percent of companies are paying out 2008 bonuses below targeted levels, with more than a quarter not rewarding bonuses at all for 2008. Looking forward, companies report that 2009 bonus budgets will be the same or lower than 2008.
Other survey findings include:
* Long-Term Incentive (LTI) Plans - For 2009, about half of all companies are reducing grant values and adjusting the number of underlying shares granted, reflecting the effort to balance competitiveness while conserving authorized plan shares.
* Underwater Stock Options - More than half of public companies have more than 75 percent of their outstanding stock options underwater. More than half of these companies have implemented or are considering a re-pricing or exchange program to address their underwater options.
* Special Retention Programs - About one-fourth of companies have already implemented or are considering a special retention program. This is far below the number of companies that have implemented 2009 base salary freezes or reductions, raising a question as to whether companies who reduce or freeze salaries and do not at the same time focus on retention may risk losing some of their top talent.
"The result of the economic downturn appears to be prudent spending on executive salaries and bonuses - in order to address cash and profit constraints - and reduced equity compensation - in order to minimize book expense and manage share reserves and dilution conservatively," concluded Nemerov. "To ensure retention and motivation of key employees, our survey findings indicate that U.S. companies will provide cash and equity awards at levels lower than 2008. To the extent that talent retention is a concern, companies may need to focus their compensation program on a smaller, more selective group of participants in 2009."
To download a full copy of the survey, Executive compensation: Rethinking strategies for challenging times, please go to www.GrantThornton.com/cbc.