The number of companies that froze salaries and added clawback policies to their executive pay programs has jumped sharply during the past three months, according to a new survey by Watson Wyatt. This update to a December 2008 survey also found that many companies plan to slash funding for annual bonuses and reduce the value of long-term incentive (LTI) awards.

“The recession has shone a light on executive pay, causing many companies to re-evaluate the long-term implications of their executive pay policies,” said Andrew Goldstein, North American co-leader of executive compensation consulting at Watson Wyatt. “Although boards are under pressure to make changes, it’s still not clear whether the changes they have made have been aggressive enough to placate shareholders.”

According to the survey, conducted during the first week of March and included responses from HR and compensation executives at 145 companies, the percentage of respondents that have frozen salaries has jumped to 55 percent from 21 percent in December. Approximately half (48 percent) of respondents plan to decrease this year’s bonus pool by an average of about 40 percent. Additionally, 23 percent of respondents have added a clawback policy. A third (33 percent) of respondents also expect that their LTI grant dollar values will fall, with an average decline of 35 percent.

Almost four in 10 (37 percent) of the companies that have already reduced or plan to reduce long-term incentive grants said they did so because it was the “right thing to do in response to shareholder value.” Another third (34 percent) cited declining competitive pressures from the market, while slightly lower percentages cited internal reasons such as a lack of shares available in the plan (29 percent), managing dilution or the run rate (32 percent) and poor company performance (23 percent).

Another concern for compensation committees is the current regulation landscape. Approximately half of companies surveyed said that they were moderately to significantly concerned about so-called “say on pay” measures (56 percent), expanded Compensation Discussion and Analysis (CD&A) disclosures (50 percent), deferred compensation limits (46 percent) and excluding “excessive risk” from compensation programs (43 percent). Despite this, more than 70 percent of companies surveyed have not added a formal risk assessment process, and 69 percent have not certified in their proxy that a risk assessment has been performed.

“TARP sections relating to excessive risk are expected to put pressure on companies outside the financial industry as well,” said Ira Kay, global director of executive compensation consulting at Watson Wyatt. “For that reason, it is essential for HR and compensation executives to determine ways to assess risk early and incorporate these into their executive pay programs.”