Executive Long-Term Incentive Plans

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Executive Long-Term Incentive Plans, an Equilar publication, examines trends in incentive plan design at Equilar 500 companies over the last five fiscal years. The report analyzes performance metrics and periods associated with long-term awards granted to NEOs, particularly CEOs and CFOs. Morgan Stanley at Work provided independent commentary on the structure of incentive plan design as we head into plan design season. 

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Key Findings

  • TSR relative to company peers continues to be the top metric determining payouts for executive LTIPs, appearing in pay packages offered to NEOs at 56.3% of Equilar 500 companies.
  • Return on capital (ROC) increased in prevalence from 2016 to 2020, appearing in NEO LTIPs at 39.3% of Equilar 500 companies in the most recent fiscal year, up from 36.1% in 2016.
  • Three-year performance periods are by far the most common time horizon for LTIPs, employed at 88.1% of Equilar 500 companies in 2020, up from 82.1% in 2016.
  • Executive LTIP awards employ a range of performance indicators, most commonly including one to four metrics that determine payout on an individual award.
  • By far the most common maximum for payouts was double the award (200%), assigned to 121 metrics studied in 2020 LTIPs for Equilar 100 CEOs. Meanwhile, there was more variety among minimum payout ranges.