ROCKVILLE, Md. (December 5, 2023) – ISS-Corporate, a leading provider of compensation, governance, cyber risk monitoring, and sustainability offerings to help companies improve shareholder value and reduce risk, today released an analysis of goal level achievement used to determine annual award payouts at S&P 1500 companies between 2018 and 2022. Following from a September analysis of payout levels for annual incentive awards, this new report examines the metrics underlying these awards, with a focus on earnings metrics. The report finds that CEOs achieved target goals at least 60 percent of the time over the five-year period examined, including in 2020 and despite significant economic variability. The consistency of goal achievement may call into question the rigor of goals that companies are setting, as the core tenant of incentive compensation is setting challenging goals to incentivize strong performance and rewarding exceptional (i.e., non-frequent) performance at the upper end.
Other findings from the analysis include:
- Earnings metrics are the most prevalent from of financial metrics in annual incentive awards. This is consistent across S&P 1500 companies, with mid-cap and smaller-cap companies exhibiting a higher usage of an earnings metric. S&P 500 companies lead on adoption of ESG metrics, due largely to recent pressure from investors and other stakeholders.
- In fiscal 2022, 68 percent of companies achieved target earnings goals while 25 percent reached maximum levels. Conversely, only 11 percent of earnings goals were not met. Goal achievement is fairly consistent across different sized companies although S&P 500 companies seem to achieve target goals at a higher rate and maximum goals at a lower rate. For all groups observed, achievement rates at target and maximum in particular are above what are viewed by many consultants, academics, and practitioners as best practices.
- Fifteen percent of companies exceeded their earnings target goals by 50 percent in each of the last five years, with an equivalent percentage of companies missing earnings targets by more than 50 percent on the lower end. In aggregate, 30 percent of results fell outside the extreme bounds of the range, calling into question to what extent companies are modeling and planning for outlier outcomes in their compensation design to account for variability in performance.
- A 70-point spread in achievement rates exists between the highest (Equity Real Estate Investment Trusts) and lowest (Real Estate Management and Development) performing industries in fiscal 2022. Despite this difference, the majority of industries (72 percent) achieved earnings goals above the 60 percent mark – recalling the best practices of award design which stipulate that target goals have an achievement rate of 50 to 60 percent.
“While above target payouts and consistent goal achievement rates result in handsome rewards for executives, they raise nagging questions about the rigor of the goal-setting process and may set a precedent for future payout expectations,” said Roy Saliba, Managing Director at ISS-Corporate.
Read ISS-Corporate’s full analysis here.
ISS Corporate Solutions, Inc. (“ISS-Corporate”) is a leading provider of cutting-edge SaaS and high-touch advisory services to companies, globally. Companies turn to ISS-Corporate for expertise in designing and managing governance, compensation, sustainability, and cyber risk programs that align with company goals, reduce risk, and manage the needs of a diverse shareholder base by delivering data, tools, and advisory services. ISS-Corporate’s global client base extends across North America, Europe, and Asia, as well as other established and emerging markets worldwide.
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ISS STOXX GmbH, through its group companies, is a leading provider of comprehensive and data-centric research and technology solutions that help capital market participants identify investment opportunities, detect qualitative and quantitative portfolio company risks, and meet evolving regulatory requirements. With roots dating back to 1985, we today deliver world-class benchmark and custom indices across asset classes and geographies and serve as a premier source of independent corporate governance, sustainability, cyber risk, and fund intelligence research, data, and related offerings. Our products and services give clients the scale and leverage they need to grow their business more effectively and efficiently. ISS STOXX, which is majority owned by Deutsche Börse Group, is comprised of more than 3,400 professionals operating across 33 global locations in 19 countries. Its approximately 6,400 clients include many of the world’s leading institutional investors who turn to ISS STOXX for its objective and varied offerings, as well as companies focused on ESG, cyber, and governance risk mitigation as a shareholder value enhancing measure. Clients rely on ISS STOXX’s expertise to help them make informed decisions to benefit their stakeholders.