High-performing companies distinguish themselves not just through impressive financial results and attracting talent but also through their tailored executive compensation programs, it has been suggested.
According to WTW's latest research, these organisations, termed Enduring High Performers (EHPs), structure their executive pay to prioritise performance alignment over market conformity.
EHPs are identified within the S&P 500 for consistently outperforming the index about 90% of the time over the past decade. These companies are predominantly from the financial, industrial, and IT sectors.
On the other hand, energy and utilities sectors don't make the list due to inherent characteristics such as high dividend yields and low volatility.
A decade into WTW's research, it finds that EHPs continue to set their executive pay at the median level but link a portion of potential earnings to performance outcomes.
For instance, while the broad market may offer a maximum short-term incentive (STI) of 200% of the target, EHPs push this to 215%.
Additionally, their long-term incentives (LTI) also reflect higher performance stakes, with payouts at the 75th percentile reaching 305%, versus the broader market's 220%.
What sets EHPs apart is their streamlined approach to performance metrics. They use fewer metrics to maintain focus and encourage a long-term outlook.
For example, while the broader market often utilises four or more STI metrics, EHPs generally employ three or fewer. This simplicity extends to their preference for stock options over time-vested shares, emphasising stock price appreciation as a key metric.
WTW's findings reveal that what works for the market doesn’t necessarily constitute best practice.
"It is critical for you to also keep your organisation’s unique strategy, lifecycle stage, culture and objectives top of mind when considering your path forward,” it concluded.
"Assessing what will be best fit and relevant to your executives against both EHP practices and market practices is a step in the right direction."
