Center On Executive Compensation

Highlights from Meridian’s Corporate Governance and Incentive Design Survey

Meridian released the key findings from their 2022 survey focused on company practices and policies for board governance, compensation-related proxy disclosures and long-term incentive programs for the Meridian 200, a subset of the S&P 500. Highlights are provided below, but the full survey is well worth a read.

Common Board Practices

  • Tenure. 47% of board members have served for five years with 28% serving for 10 or more years. This is a decrease in tenure of 5%, indicative of the focus on board refreshment. However, it is still uncommon to have mandatory term limits.

  • Diversity. Nearly all companies disclose board diversity for their current board membership in their most recent proxy.

    • 98% report age, gender and/or ethnicity (10% increase from 2019)

    • 91% report ethnic diversity statistics (24% increase from last year)

    • Female representation outpaces ethnically diverse representation, with nearly one-third reporting less than 20% representation of ethnically diverse directors but only 4% reporting less than 20% representation of female directors.
  • Compensation. Almost all (97%) Lead Directors receive additional retainer fees; 58% of these companies pay between $30,000-$50,000.

    • Organizations paying over $30,000 have increased 25 percentage points from 2019, which is likely an indication of increased levels of responsibility.

  • Retirement. 78% disclose a mandatory retirement age policy for board directors. The age requirement is nearly always between 72-75 with 45% reporting age 75, which is an increase of 10% over the past 3 years.

Proxy Disclosure Practices

  • Corporate Responsibility. As expected, companies are increasingly disclosing the internal tracking of long-term sustainability or climate change goals.

    • 83% currently disclose, up from 70% in 2021. 88% mention a Corporate Responsibility Report which typically highlights progress and achievements in sustainability, climate, and diversity and inclusion.

  • Company Performance. The vast majority of companies (89%) report absolute financial results or stock price/TSR performance in the proxy, but reporting on relative performance is less common. Note that this is separate from any pay-for-performance disclosure – this item is related to the performance graphs many companies place up front in the proxy or CD&A.

    • 39% disclose relative company performance with 62% of those reporting on a broad industry index and 49% using the company’s compensation benchmarking peer group.

  • Pay and Performance. 20% of the Meridian 200 include additional disclosures to communicate alignment between NEO pay and company performance.

    • Of those that include additional disclosures, 62% use Realized or Realizable Pay to define compensation.

    • 63% compare realized/realizable pay to target pay, 28% compare against the Summary Compensation Table and 21% compare against pay at other companies.
  • Clawbacks. 99% of the Meridian 200 now disclose a recoupment policy, and a surprising number (53%) are “no-fault;” that is, they do not require fraud or misconduct to trigger a possible clawback.

    • 54% have a trigger for ethical misconduct without the requirement of financial restatement. This could include violations of company policies and other criminal or illegal misconduct.

    • 20% have a trigger for reputational risk and 25% for a violation of a restrictive covenant.

Annual Incentive Plan Design

  • Earnings Metrics. Earnings based measures continue to be the most widely used metric in annual plans with 83% of companies include some type of earnings metric.

    • Operating Income (53%), Revenue (51%), Cash Flow (38%) and EPS (25%) are the most prevalent, but this can vary depending on industry.

  • Operational and Individual Metrics. The use of these metrics has gradually increased year-over-year with 57% of companies incorporating operational/strategic corporate goals (up from 55% in 2021). This is driven from the inclusion of ESG metrics.

    • It is less prevalent to use weighted individual performance goals (18%) or individual modifiers (25%) 

Long-Term Incentive Plan Design

  • Vehicle Use & Mix for NEOs. 55% of companies use two LTI vehicles, 38% use three or more and 7% use only one vehicle. Performance-Based Shares/Units are predominant with 97% reporting usage. Restricted stock/units are also common (73%) followed by Stock Options/SARs (54%).

    • The vast majority of companies use the same mix for the CEO and other NEOS (82%)

    • Since 2012, performance-based vehicles represent at lease 50% of the LTI value; 61% for CEOs and 59% for other NEOs this year.

  • Metrics. Relative Total Shareholder Return (TSR) is the most prevalent metric used by 76% of companies and used either as a discrete weighted metric or performance modifier.

    • 90% of organizations combine the Relative TSR with one additional metric.

    • Comparison groups vary with 33% using a general market index, 31% comparing against a performance peer group (usually a variation of the compensation benchmarking peer group) and 26% assess against an industry specific index.

Published on: October 21, 2022

Authors: Megan Wolf

Topics: Corporate Governance, Executive Pay Plan Design

Megan Wolf

Director, Practice, HR Policy Association and Center On Executive Compensation

Detailed Bio


Poking Holes in Performance Plans
Executive Pay Plan Design

Poking Holes in Performance Plans

November 11, 2022 | News
The 5-Year Evolution of Retention Awards
Corporate Governance

The 5-Year Evolution of Retention Awards

November 04, 2022 | News

Continue reading this content with the Center On Executive Compensation Membership package