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Shareholder concerns link executive pay to performance.

A study of 144 large U.S. corporations (those with sales of $5 billion or more) by William M. Mercer, Inc. found companies are taking stronger measures to link executive pay with company performance. Among the corporations studied, 28% have implemented more rigorous performance standards for executive incentive programs and another 33% expect to do so.

More than 40% of the large companies are considering a change in their criteria for assessing executive performance, such as using measures of shareholder returns rather than earnings per share. A number of the companies also are adding nonfinancial yardsticks, such as the degree of customer and employee satisfaction and the timeliness of the company's product or service deliveries.

The components of executive compensation packages also may be changing. Thirty-three percent of the companies said they may offer top managers less cash but more stock or stock options, and 32% may increase the responsibility of the board of directors for executive pay decisions.

There seems to be little doubt that shareholder interest in executive pay patterns has contributed to the shifts. The study found 43% of the companies had heard from shareholders on executive pay, with 28% reporting an increase in such inquiries in the last 12 months.
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Publication:Journal of Accountancy
Article Type:Brief Article
Date:Feb 1, 1993
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