There is a clear divergence between corporate directors and institutional investors views on executive pay models in the United States, with nearly three-quarters of investors saying the pay model has led to excessive pay levels.
In contrast, only one-in-five directors believe this is the case, according to a new survey by global professional services company Towers Watson and Alliance Advisors, a proxy solicitation firm.
The survey reveals that both groups believe the U.S. executive pay model has improved over the past five years, with 91 percent of directors and 97 percent of shareholders saying that the model has either stayed the same or changed for the better since say-on-pay votes were required.
The survey, Evolving Director and Investor Views of Executive Pay in the Say-on-Pay Era, was conducted in October and November 2013. More than 120 corporate directors and more than 30 institutional investors with combined assets under management exceeding $12 trillion participated, the survey firms said. The number of participants from the financial services or insurance sector was not immediately available.
According to Towers Watson and Alliance Advisors, while the percentages of directors and investors who said executive pay is sensitive to corporate performance both increased about 50 percent since 2008, there is a gap in the director and investor responses here as well. While 89 percent of investors see more ties between pay and performance, only 59 percent of investors do, according to the 2013 tallies.
The two groups disagree on several other fronts:
- 70 percent of directors say the executive pay model at most companies is closely linked to company strategy, compared with just 34 percent of investors.
- 23 percent of directors say executive pay is overly influenced by management, compared to 66 percent of investors.
- More than two-thirds of investors believe more frequent shareholder engagement would enhance the pay-setting process. Only 13 percent of directors believe this.
- 84 percent of investors say enhanced pay disclosure would help, compared to 36 percent of directors.
“Given the strong level of shareholder support for say-on-pay votes the last three years, directors firmly believe they are doing a good job of addressing executive pay issues and that revisions to the executive pay model are generally working well,” said Andrew Goldstein, central division leader for executive compensation at Towers Watson, in a statement about the survey report.
“Investors, however, seem to want an even greater voice in the pay-setting process and also improved communication between companies and shareholders.”
Reid Pearson, executive vice president at Alliance Advisors, said that disconnects about improving the pay process may stem from the fact that many investors aren’t fully informed about what goes into it at many companies. “It seems clear from the survey responses that both groups of stakeholders feel the U.S. pay model has improved in recent years, but investor perceptions have not caught up with the view in the boardroom,” he said.
The announcement about the report did highlight some noteworthy areas of agreement between directors and major institutional investors, including the fact that a majority of those surveyed in both groups see the need for greater consideration of strategic, nonfinancial performance measures in annual and long-term incentives.
About Towers Watson
Towers Watson is a leading global professional services company that helps organizations improve performance through effective people, risk and financial management. The company offers consulting, technology and solutions in the areas of benefits, talent management, rewards, and risk and capital management. Towers Watson has more than 14,000 associates around the world and is located on the web at towerswatson.com.
About Alliance Advisors
Alliance Advisors is a shareholder intelligence firm that specializes in proxy solicitation, corporate governance consulting, proxy contests, information agent services and proxy management. Founded in 2005, the firm services more than 350 corporate clients nationwide.
Source: Towers Watson, Alliance Advisors