Amid recession fears and labor shortage concerns, companies are continually rethinking how they compete for executive talent. Since even before the COVID-19 pandemic reshaped the workforce, retaining effective senior leadership has been a core objective of any company’s management strategy. To achieve this, some companies consider granting a one-time retention award to supplement an executive’s regular annual pay, delivering the award after a specified amount of time has lapsed. Retention awards are also often granted to solidify the management team during a business transformation or to incentivize an executive to stay with the company during a competitive talent situation. And they have proven to be effective: Based on our review of awards to S&P 1500 executives during 2017 to 2019 with retention periods that were completed by August 31, 2022, over three-quarters (76%) remained with the company through the end of the retention period.
Companies building business resilience can often justify granting an award both during a period of sustained success as well as while navigating a challenging business or industry environment. While issuing awards to executives outside of their normal pay programs can be warranted, the rationale, form and amount of these awards are often subject to scrutiny by proxy advisor firms.
WTW’s Global Executive Compensation Analysis Team examined special executive retention awards using a constant sample of 1,433 S&P 1500 companies that made public data filings for fiscal years 2017 to 2021. In addition, early fiscal 2022 awards disclosed in proxies and 8-K filings through August 31, 2022, were analyzed for comparison.
Looking ahead
Retaining effective senior leadership remains a bedrock principle for companies for sustained operational and financial success. Special one-time retention awards have long been used to help facilitate this goal, particularly when there is strong competition for talent among peers; however, award structure and recipient demographics have evolved over the past five years and continue to do so. Based on our early look at 2022 retention award grant practices, awards continue to incorporate performance requirements (41% of 2022 retention awards), are subject to ratable versus cliff vesting (69% of 2022 awards) and are increasingly awarded to female executives (rising to 22% of 2022 awards). Companies should consider the evolving norms associated with retention award design as well as the optics of issuing such awards — and be mindful of how the rationale and attributes of the awards are communicated to key stakeholders as they pursue their management retention goals.
For a more detailed summary of our five-year retention award analysis, please download the pdf below.
