Performance Linked to Pay Incentives

Executive compensation tends to vary significantly dependent upon industry, size, and performance, and this year’s NYSE vs. Nasdaq shows some wide disparities between the two indices, as well as between the top and bottom performers within them, according to The DolmatConnell & Partners 2008 NYSE vs. Nasdaq Study.

The differences include:

• NYSE firms are approximately 10 times larger than Nasdaq firms in revenue and approximately five times larger in market capitalization.
• There is a direct relationship between size and executive compensation, which is emphasized in this study by comparing the two indices.
• Larger firms generally have greater difficulty sustaining high levels of growth and performance.

As these are contributing factors to executive compensation, there are noticeable differences between the level and form of compensation at firms in the NYSE and Nasdaq, as well as between the top and bottom performing firms in each index.

The relative size and performance of the NYSE and Nasdaq firms included in this study also have a significant impact on their executive compensation strategies.

NYSE firms are generally more mature, have lower stock price volatility, and may not have significant room for growth. Accordingly, these companies structure their executive compensation programs in a manner that addresses these factors and provides meaningful incentives that focus on earnings, market share, and maintaining profitability.  Nasdaq firms are generally younger, have larger fluctuations in stock price, and significantly greater price‐to‐earnings (P/E) ratios. These firms typically motivate their executives by focusing incentives on growth, profitability, and shareholder value creation.

Some of the most significant areas in which size and performance influence executive compensation in the NYSE and Nasdaq revolve around annual bonus targets and payouts, equity instrument use, instrument mix and provisions, and metric selection in both short‐term incentive (STI) and long‐term incentive (LTI) plan design.