Study of 2014 Short- and Long-Term Incentive Design Criterion Among Top 200 S&P 500 Companies

In order to investigate what (and how much) is being reported in annual proxy statements about executive pay packages and how incentive pay is designed, Arthur J. Gallagher & Co.'s Human Resources & Compensation Consulting Practice (formerly James F. Reda & Associates a Division of Gallagher Benefit Services, Inc.), has conducted a study of the 2015 annual proxy statement disclosures for 200 of the top U.S. companies (based on revenue and market capitalization). This is the seventh consecutive year we have conducted this in-depth analysis for the top-200 public companies. It has been almost five years since the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) was signed into law. 2015 has been an active year in the SEC's implementation effort of this Act. The final version of the controversial CEO pay ratio disclosure rules were released on August 18, 2015.In addition to finalizing the CEO pay ratio disclosure, the SEC released three anticipated rule proposals in 2015: (i) hedging policy disclosures (February 19, 2015), (ii) pay vs. performance disclosures (April 29, 2015) and {iii) compensation recoupment (i.e., clawback) policies (July 1, 2015). The final rules for these proposals will impact board process and oversight by focusing more on corporate performance and fairness to employees and shareholders, the structure of executive incentives and overall executive pay mix. Most public companies have redesigned their incentive programs over the last several years to ensure there is a link between performance achievement for the company and executive, and performance achievement for shareholders. Indeed, we continue to see increases in the use of performance-vested grants as a means for more closely linking pay to performance. A disconnect stemming from faulty incentive design could expose an executive and the board of directors to unwelcome scrutiny from shareholders and the general public