S&P 1500 2019 Bonus Expectations and a Look to 2020

The Harvard Law School Forum on Corporate Governance and Financial Regulation 2020-01-26

Posted by Steve Kline and Chris Kozlowski, Willis Towers Watson, on Sunday, January 26, 2020
Editor's Note: Steve Kline is a director and Chris Kozlowski is a senior principal consultant at Willis Towers Watson. This post is based on their Willis Towers Watson memorandum. Related research from the Program on Corporate Governance includes Paying for Long-Term Performance by Lucian Bebchuk and Jesse Fried (discussed on the Forum here).

The new year provides the chance to look back at where we’ve been. Our post summarizes financial performance in 2019 and how those results are expected to drive annual incentives for 2019. It’s also a time for looking ahead. So we consider how performance results are expected to rebound in 2020.

First, we consider median results for the S&P 1500 through the first three quarters of 2019. Figure 1 shows how financial performance has deteriorated from the same three-quarter period in 2018. Growth in revenue, earnings before interest and taxes (EBIT) and cash flow have been well below the trend in 2018. Returns on the balance sheet are down slightly. Interestingly, investors have remained optimistic despite volatility and persistent global risks.