According to a Watson Wyatt news release about its recent survey on the executive pay issue, directors and institutional investors disagree over whether the U.S. model is changing for the better.
The news announcement said 63% of directors think the executive pay system is improving compared with just 36% of institutional investors. The two groups also diverge on whether the executive pay model has helped to improve company performance. While two of three directors (65%) believe it has, only 39% of institutional investors agree.
However, three-quarters of institutional investors
believe the executive pay model has hurt corporate
America’s image. A majority of both groups also believe
the system has led to resentment among the rank and file
and has resulted in excessive executive pay levels.
The study also found that both directors and institutional investors believe the Securities and Exchange Commission’s (SEC) new compensation disclosure requirements have been helpful, although improvements are still needed. For example, more than 80% of institutional investors and nearly three-fourths of directors feel the new requirements improve pay disclosure and transparency.
“While directors and institutional shareholders agree on key executive pay issues, they don’t see eye-to-eye on other areas,” said Ira Kay, global director of compensation consulting at Watson Wyatt, in the news release. “While directors believe the system generally works, institutional investors generally feel the model’s flaws run deeper and require more substantial changes. Clearly, more work needs to be done.”
According to the announcement, other study findings include:
- Only 6% of directors and 14% of institutional investors do not believe firms should typically find top executive talent from inside the organization, while 56% of directors and 45% of institutional investors prefer to promote from
- While 46% of institutional investors believe that executive pay opportunity can be significantly reduced without losing key talent, only 25% of directors agree.
- Both directors (94%) and institutional investors (85%) agree that severance and change-in-control agreements should be set at or below market.
The survey is based on interviews with 163
directors who serve on corporate boards of companies that
collectively earn $1.5 trillion in annual revenue, and 72
investment and pension fund managers who manage more than
$5 trillion in assets.
More information is available at http://www.watsonwyatt.com/boardandinvestors .