There are many key areas in which corporate directors and institutional investors may not always agree. Two of them are the degree of alignment between company performance and strategy and whether executive pay levels are too high.
The two groups actually agree that the U.S. executive pay model has improved over the past five years, but remain divided on the impact of say-on-pay voting, according to a new study by Towers Watson and Alliance Advisors, a proxy solicitation firm.
In fact, most directors (91 percent) and shareholders (97 percent) believe the executive pay model has either stayed the same or changed for the better since say-on-pay votes were required. In addition, the percentage of directors (89 percent) and investors (59 percent) who believe executive pay is sensitive to corporate performance has increased by about 50 percent since 2008.
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 working well overall, according to Andrew Goldstein, central division leader for executive compensation at Towers Watson. Investors, however, see things quite differently.
“Investors, however, seem to want an even greater voice in the pay-setting process and also improved communication between companies and shareholders,” Goldstein said in a statement. “Despite investors’ views that executive pay is on the right path and their overwhelming support for company pay programs in say-on-pay votes at most companies, it’s clear that they also see considerable room for improvement.”
The study also revealed that neither directors nor investors think the Dodd-Frank CEO pay ratio disclosure rule will help improve the model. Twenty-six percent of directors believe say-on-pay votes have been a key driver of pay decisions by boards, compared with 63 percent of investors who feel that way
Furthermore, only one in five (20 percent) directors say the executive pay model in the U.S. has led to excessive CEO pay levels, a sharp decline over the past five years, while nearly three in four (72 percent) investors say the pay model has led to excessive pay levels.
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