CEO Bonuses May Vary Wildly this Year, Survey Finds

More than a third of American senior executives could enjoy a bumper bonus this year following a substantial improvement in third-quarter earnings results, a new survey suggests.

Bonus payments, however, will still differ wildly, potentially reflecting a wide variation in sector-to-sector corporate performance, according to Willis Towers Watson.

After polling 260 American executives and compensation professionals, the London-based advisory firm found that 36% expect to pay annual 2016 performance bonuses that exceed 110% of target. An almost equal amount, 35%, anticipate paying bonuses at 90% of target or below, while the remaining 29% expect to pay close to target.

“We were somewhat surprised that so many companies expect to pay bonuses well above target for 2016 performance, given the relatively tepid growth in revenue and earnings in many industries this year,” said the firm’s Andrew Goldstein.

“A key measure of U.S. corporate earnings for the three months through September rose by 5.2% on-year.

Although the stock market has recently surged to record highs, the underlying performance of many companies was mediocre this year, potentially suggesting a continuation in the downward trend in bonuses that occurred in 2015.

“But without question, third quarter financial results improved, so the strength of the fourth quarter could alter the balance,” Goldstein said.

A key measure of U.S. corporate earnings for the three months through September rose by 5.2% on-year, according to recent figures published by the Commerce Department. Technology, financial services and consumer discretionary companies led the increase.

One of the biggest sources of variation in corporate performance this year was a low oil price, which hurt big producers such as ExxonMobil and Chevron. Transport companies such as airlines benefited from the related fall in fuel costs.

Rising earnings come amid signs that years of loose monetary policy have at last ignited the economy. U.S. third-quarter GDP increased by 3.2%, while unemployment fell and wages rose—all pointing to a happy future for bonuses.

To be sure, what the board can giveth, the board can taketh away. Willis Towers Watson’s survey also found that most respondents currently have some form of clawback policy in place that covers fraud, misconduct or financial restatements. Only 10% said they’re likely to consider expanding their clawback policy next year.

The finding comes after Wells Fargo this year reclaimed a combined $60 million in uninvested options held by dismissed CEO John Stumpf and the bank’s former retail head following the fake-accounts scandal.

“We strongly recommend companies carefully review their clawback policies to ensure they’re broad enough to permit a clawback for circumstances that result in significant financial or reputational harm to the company,” Goldstein said.


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