U.S. executive pay practices are moving in the direction of the kind of long-term incentives used extensively in Europe, according to a new Hay Group executive comp study. While the vast majority of U.S. and European companies emphasize long-term incentive plans for the senior executives, the most common compensation vehicle– stock options–is designed very differently in Europe than it is in the U.S. Most U.S. companies issue stock options without tying them to any additional performance measures, whereas their European counterparts insist on executives meeting additional performance conditions for vesting.

Recent new disclosure requirements on executive compensation, newer accounting treatment for stock options and heightened concern among shareholders rights groups and institutional investors about excessive compensation are prompting U.S. companies to reexamine their compensation structures. But Irv Becker, U.S. practice leader at the Hay Group, also thinks that companies are being influenced by Europe for other reasons. "You have a lot of mergers and acquisitions that are global in nature," notes Becker. "And so there are a lot more European companies buying U.S. companies, and that means more European influence on executive compensation as a result of those transactions."

Still, U.S. companies must cross a relatively wide chasm before compensation incentives truly take on a European look. Some 63% of U.S. companies provide time-vested restricted share plans to their eligible employees, as compared to less than 5% of European companies that grant those restricted shares. "Companies are getting a lot of pressure from institutional shareholders that they don't like time-vested restricted stock [compensation]," says Becker. "We definitely believe in the next couple of years, we will see more and more companies using performance shares. And I think it will start to whittle away at the usage of time-vested restricted stock."