Pearl Meyer's recent survey of 138 directors and management aimed to understand whether companies are changing or planning to change their executive incentive compensation metrics in view of the recent elimination of the IRC §162(m) performance-based pay exception. Notwithstanding the greater flexibility to now use non-objective, qualitative performance criteria, the survey results indicate that although a healthy minority of companies will place, or will consider and anticipate placing, greater emphasis on alternative measures in 2019, most companies won't or don't anticipate doing so, as shown here:
Q: Do you anticipate restructuring incentive plans in 2019 to place less emphasis on financial results-based formulae?
Notably, directors appear much more likely than management to be open to considering greater emphasis on non-financial performance criteria, which Pearl Meyer indicates is consistent with previous poll results on the impact of increased investor focus on ESG issues on executive compensation plans, which we reported on here.
The firm encourages companies to consider targeted use of non-financial measures that align annual incentive plans with corporate strategy in a way that - if well-articulated - will appeal to investors.