One area of executive compensation that has received a tremendous amount of attention over the past year is the disclosure of performance targets. While many companies disclose metrics, it’s less common to see companies include their actual targets/goals in their CD&As. Last year, we found that 44.4% of Fortune 100 companies disclosed annual incentive plan performance targets for their executives with varying levels of specificity.

As we enter proxy season, I’ve had the pleasure of reading the CD&As (lucky me!) of early filers and came across one that I found especially interesting. In American Electric Power’s CD&A, they included their Wall Street earnings estimates and how the calculation of an executive’s bonus is tied to EPS performance:

Annual Performance Objectives: In February 2007 the HR Committee established AEP’s 2007 ongoing earnings guidance of $2.85- $3.05 per share as the funding measure for AEP’s annual incentive compensation program. This performance measure required earnings per share equal to:

As someone who spent six years on Wall Street before starting Equilar, I’ve been asking myself these questions ever since the new SEC disclosure rules were announced nearly two years ago. What is the linkage between an executive’s performance targets and the guidance that companies are providing to the investment community? Wouldn’t one expect them to be somewhat aligned? And, if not, why aren’t they?

Another interesting thing to point out about the AEP CD&A is that not only did they compare 2007 performance against 2007 EPS guidance, but they also disclosed what the targets are for 2008, something that I don’t think that I’ve seen before.

In January 2008 the HR Committee also established AEP’s 2008 ongoing earnings guidance of $3.10- $3.30 per share as the funding measure for AEP’s annual incentive compensation program. This performance measure requires earnings per share equal to:

If AEP’s ongoing earnings for 2008 is less than $3.10 per share then no annual incentive compensation will be paid out to executive officers or to other employees. The 2008 earnings per share target is $0.25 (or approximately 8.5%) higher than the 2007 earnings per share target.

It will be interesting to see if more companies take this lead as the pace of proxy filings increases in the upcoming weeks.

For further reading on the topic of performance metric disclosure, The Wall Street Journal published a very interesting article on this subject last Friday.

Take Two Interactive (TTWO) recently adopted a broad-based severance plan for all of its employees. While on the surface the arrangement sounds similar to Yahoo!’s, there are several key differences which I asked Derek and Alex to summarize below for everyone. If you choose to read the 8-Ks, you’ll find TTWO’s disclosure provides greater detail on the severance arrangements.