In Depth
Non-equity incentive compensation refers to cash-based bonus payments that are contingent on achieving pre-established performance goals. These are distinct from discretionary bonuses (which are reported in the "Bonus" column of the Summary Compensation Table) because they are formulaic — the compensation committee sets specific targets before the performance period begins, and the actual payout is determined by results against those targets. Most S&P 500 companies structure the annual incentive as a percentage of base salary, with a "target" payout (typically 100-200% of salary), a "threshold" below which no payout is earned (often 50% of target), and a "maximum" cap (usually 200% of target). Common performance metrics include revenue, adjusted earnings per share, operating income, EBITDA, free cash flow, and return on invested capital. Many companies use a combination of financial metrics with different weightings, and some include individual performance modifiers or strategic objectives that can adjust the formulaic payout up or down. The non-equity incentive is typically the second-largest cash component of executive pay after base salary, and for most CEOs represents $2 million to $10 million annually at target performance levels. Companies must disclose the specific metrics, targets, and payout curves for their annual incentive plans in the CD&A section of the proxy statement, although they may request confidential treatment for specific numerical targets if disclosure would cause competitive harm.