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Article | Executive Pay Memo North America

Insurance Industry 2020 Incentive Payouts Survey findings

Executive Compensation
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By Steve Hinden , Max Fogle , Chris Rogers and Shannon Williams | April 28, 2021

Median AIP and LTI payouts for year-end 2020 remained above target for life & annuity insurers and on target for property & casualty insurers.

Willis Towers Watson conducted a pulse survey of insurers to collect data on annual incentive plan (AIP) and long-term incentive (LTI) funding for 2020 performance. A total of 65 participants — 30 life & annuity insurers (L&A) and 35 property & casualty insurers (P&C) — gave insight into their incentive plan payouts as well as their considerations for design changes for 2021.

Incentive payouts

Annual incentive plan

Overall, median payouts were 103% of target, with significant differences between L&A and P&C.

L&A
  • The median payout was 110%, directionally in line with recent years.
  • Only 24% of companies were below target, and 14% paid below 90% of target.
  • 66% paid above target, and 52% paid 110% or more of target.
P&C
  • The median payout was 100%, below recent years.
  • Annual payout scores were fairly evenly distributed: 45% paid below target, and 39% paid below 90% of target.
  • 46% paid above target, and 37% paid 110% or more.

Long-term incentive plan

L&A
  • The median payout was 111%.
  • Only 24% were below target, and all of those were below 90% (8% did not pay out at all).
  • 60% paid above target, and 56% paid 110% or more.
P&C
  • The median payout was 100%.
  • 43% were below target, and 33% were below 90% (10% did not pay out at all).
  • 44% were above target, and 37% paid 110% or more.

Use of discretion

Annual incentive plan

  • AIP versus LTI: Participants were significantly more likely to apply discretionary adjustments for AIP scores than for LTI scores (33% versus 11%).
  • L&A versus P&C: L&A companies (41%) were more likely than P&C companies (26%) to apply discretionary adjustments for AIP scores, and the average increase was bigger for L&A.
    • L&A companies using discretion went from an average formulaic score of 95% to 114%; median score went from 103% to 112%.
    • P&C companies using discretion went from an average formulaic score of 80% to 91%; the median score went from 82% to 90%.
  • Public versus non-public companies: Public company participants were less likely to apply discretion than non-public company participants (28% versus 36%, respectively), and when they did, the median adjustment was much lower for public participants (plus four percentage points) versus non-public participants (plus 16 percentage points).
  • Only four companies used negative discretion to adjust their final payouts, and no companies that had a formulaic outcome below threshold used discretion.

Changes considered in 2021

Annual incentive plans

Participants were asked if their organization is considering, anticipating or implementing changes to their AIP metrics, metric weighting, target setting or payout curves.

  • Approximately 40% of respondents considered or implemented at least one change to their annual incentive plans, with a relatively even split between the elements asked.
  • For L&A companies, highest prevalence was a change in target setting (31%).
  • For P&C companies, highest prevalence was a change in metrics (30%).

Long-term incentive plans

Participants were also asked about their organization’s response to changes in LTI elements, including metrics, metric weighting, target setting, payout curves, LTI mix and performance period.

  • Almost half considered or implemented at least one change, with L&A more likely to consider changes than P&C.
  • Target setting, payout curves and metric selection changes were each being considered or implemented by roughly 30% of L&A participants and by roughly 20% of P&C participants.
  • L&A participants showed more interest in changing performance periods (11%) and higher grant values (15%) than did P&C (3% for each).

Conclusion

Incentive payout scores for AIP and LTI this past year showed considerable variation. The prevalence of applied discretion in an environment that may put metric selection in flux and make goal setting challenging (particularly for multiyear periods) suggests that incentive design for 2022 could be an area of review by a significant portion of the industry. This is true across all segments and for both annual and long-term programs.

We expect a continued focus on plan design for 2021 and 2022 given the volatile environment; emergence of environmental, social and governance measures in incentive plans; and additional pressures on the industry. Additionally, the widespread use of positive discretion in 2020 will be important context for stakeholders to consider in future years. Willis Towers Watson will continue to monitor these trends and assist our insurance industry clients with these reviews and potential changes.

Authors

Senior Director, Executive Compensation (Stamford)

Associate Director, Executive Compensation (New York)

Associate, Executive Compensation (New York)

Analyst, Executive Compensation (New York)

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