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October 13, 2009
Executive Pay Cuts, Freezes to Stay at Least a Little Longer

Most employers have no plans to reverse executive pay cuts or freezes in the next six months, according to a new survey by Watson Wyatt, a consulting firm.

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The survey found that 63 percent of employers have no plans to restore changes made to executive salaries in the next six months.

In addition, the survey found that few employers to make any further cuts. Only 2 percent of employers are considering short-term changes such as reducing salaries, down form 10 percent in March. The survey also found that 92 percent of employers have no plans to reduce bonus opportunities or eligibility requirements. 

Watson Wyatt says that many firms are focusing on improving performance-based compensation programs. Four in 10 (39 percent) of respondents said they have changed or plan to change long-term incentive vehicles. Of these companies, 42 percent plan to put more emphasis on performance-based shares and 25 percent on performance cash plans.

Approximately three in 10 employers said they are raising performance goals relative to this year's actual performance (29 percent) and changing metrics (31 percent) in their annual incentive plans.

“Companies have moved beyond the short-term frenetic activity that we saw at the beginning of the year,” said Andrew Goldstein, North American co-leader of executive compensation consulting at Watson Wyatt. “Now, companies are looking at how they can best address more long-term concerns with structural changes to pay programs.”

The survey also found that 94 percent of respondents said they expect more scrutiny of executive pay in the next two years as a result of new legislation, Securities and Exchange Commission regulations, and public pressures, with almost three-quarters (72 percent) expecting the relationship between pay and performance to improve.

Conducted in late September, the survey included responses from HR and compensation executives at 187 organizations.

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