The slowing of the U.S. economy is shaping changes in executive compensation for this year’s proxy season, according to a new report from Mercer, the human resources and compensation consulting firm.

For one thing, shareholders, who are experiencing deteriorating returns, are becoming more activist than ever and want to see compensation outcomes linked to sustained financial and share price results. “We expect to see ‘disconnects,’ where awards based on 2007 performance are reported in 2008, a time of depressed share prices and perhaps poor Q1 earnings and revenue reports. Companies will have a difficult time getting their pay for performance story heard,” Mercer writes.

Those stories will have to hold up under duress. “Economic stagnation provides the ultimate ‘stress test’ for many corporate decisions, including executive compensation,” says Mercer, an interested party in the topics addressed in the report because it helps companies create and implement executive-pay strategies.

An unpredictable economic future also makes it hard to set incentive goals that are credible over a two-year to five-year period. Traditional measures like earnings might be too much of a moving target. Many companies are thus reassessing their performance metrics and realigning their variable-pay schemes to jibe with strategic, operational, and other longer-term measures, according to Mercer.

Companies are continuing to experiment with adding equity vehicles to the compensation mix or changing the allocations among options, restricted stock, performance-based equity, and cash. Some companies have reduced or even eliminated performance-based equity until the economy stabilizes.

At the same time, the repricing of stock options is a re-emerging strategy, Mercer noted. Some companies are examining whether there’s a compelling rationale for repricing options for all holders, not just executives. The new twist on this old strategy is that now it often requires shareholder approval—a hard thing to get if the repricing dilutes the value of their shares. It remains to be seen whether shareholders will acquiesce at a time when their returns are down.