Inst. Investors Think Many Execs Overpaid

December 13, 2005 ( - US corporate executives looking for support for current C-Suite pay practices can skip contacting most institutional investors for their backing.

That was the conclusion of a new Watson Wyatt study, according to a news release, which found most institutional players supporting a stronger link between compensation and performance.

The survey of 55 institutions, managing a total of $800 billion in assets, shows that 90% of institutional investors think the current executive compensation system has overpaid executives and 85% say it has hurt corporate America’s image, the news releases said. Additionally, nearly two-thirds (64%) say executive compensation is not disclosed properly.

While institutional investors find fault with the current system, most are positive about stock incentives based on performance. About a third favor stock options or restricted stock that vests simply over time, but a majority support offering stock options or restricted stock that vest based on performance (favored by 65% and 70%, respectively).

Not only that, but a majority of institutional investors (52%) think that the US executive pay model has produced high levels of executive stock ownership.

Other findings include:

  • Two out of three investors (67%) favor having independent consultants report to the compensation committee, where for most investors, “independent” means that the consultant does not give management executive compensation advice.
  • Total Returns to Shareholders was the metric most often cited as an appropriate performance benchmark – 38% mentioned it as the most important metric, while 62% cited it as one of the top three.
  • A majority (60%) of investors believe that requiring executives to hold shares after option exercise or vesting is shareholder friendly.