It’s that time of year when many senior executives find out how happy their new year really will be as they learn the amount of their incentive compensation for last year. For some, it looks like the Grinch stole more than Christmas. According to a Mercer survey, the impact of the economy on corporate performance is sending annual incentive payouts south. Nearly two-thirds of companies (64 percent) are expecting below-target annual incentive payouts for 2008. However, 29 percent of respondents may offer some form of a discretionary award to select employees or possibly all eligible participants in an effort to retain talent in the tough economic environment.

Substantial changes are afoot in long-term incentive compensation for ‘09. According to Bruce Greenblatt, a principal in Mercer’s executive remuneration consulting business, many companies are anticipating lower values than 2008 — somewhere between 10 to 30 percent. Some companies that have already announced reductions for this year say they’ll pay below target annual incentive payouts based on weak 2008 performance, moving away from stock options in favor of other long-term incentive vehicles and opting for selective retention awards as well as winnowing the number of participants in incentive plans. And while the number of shares granted to some employees may be flat or increase, the value will decrease due to current stock price levels.

“With market tumult comes opportunity,” said Greenblatt. “Companies in this game-changing environment have a unique opportunity to determine how best to configure their executive rewards and talent management strategies to align with key business objectives.”

Goldman Sachs Group, Inc. has already shown that where there’s a will to preserve the value of long-term compensation there’s a way. The Wall Street Journal reported that the firm sent a letter to approximately 30,000 employees stating that it’s changed how it hands out certain stock grants, including easing the rules on when restricted shares may be sold. Under the firm’s old policy, 40 percent of an employee’s stock vests immediately but it isn’t delivered for three years to encourage long-term ownership and to keep employees around for the long haul. Under the new rules, according to the report, employees will get their restricted stock in three portions: one-third a year after it’s granted and the remaining shares in each of the following two years.

But the changes don’t pertain to the firm’s top seven officers and appear to be geared to provide relief for cash-strapped employees, whose lifestyles are jeopardized by the economic crisis.