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.