Directors, investors in alignment on executive compensation, board performance
Corporate directors and investors are faced with a myriad of corporate governance issues and their views on those issues are not always in alignment.
November 20, 2013 at 05:26 AM
3 minute read
The original version of this story was published on Law.com
Corporate directors and investors are faced with a myriad of corporate governance issues — and their views on those issues are not always in alignment.
A new study reveals areas where both directors and investors are in conformity, including those voices influencing compensation. According to a recent PwC study, both segments believe that compensation consultants are “very influential” over board decisions on executive compensation (41 percent and 37 percent, respectively).
The survey, which was conducted separately, provides the insights of public company directors and investors; 934 directors responded to PwC's 2013 Annual Corporate Directors Survey, 70 percent of which serve on the boards of companies with more than $1 billion in annual revenue. At the same time, 65 institutional investors with more than $2 trillion of aggregate assets under management responded to PwC's 2013 Investor Survey.
In addition to sharing similar views on the compensation, both groups had similar views on the influence of institutional shareholders, rating them “very influential” at 22 percent and 18 percent, respectively. However, investors are 38 percentage points more likely than directors to believe that CEO pressure has a “very influential” effect on board decisions about compensation.
Another area where directors and investors match closely is say-on-pay voting. The survey found that 70 percent of directors indicate that some type of action was taken by their company in response to say-on-pay voting results. Meanwhile, 82 percent of investors believe some action was taken. But investors believe that directors should reconsider their companies' executive compensation plan at relatively lower levels of negative voting. One in five investors says that 11 percent to 20 percent negative shareholder voting signals a need to revisit compensation, compared to only 13 percent of directors.
An area where directors and investors appear to be divided is skepticism about recent regulatory and enforcement initiatives. The study founds that 47 percent of investors and 64 percent of directors say recent legislative, regulatory and enforcement initiatives have increased investor protections “not very much” or “not at all”; very few (2 percent and 4 percent, respectively) believe they have helped “very much.” At the same time, one-third of directors and almost one-in-five investors think the costs to companies of such increased activities have “very much” exceeded the potential benefits.
Other key findings from the PwC study include the following:
- Feeling better about overall board performance. Twenty-eight percent of directors say the ability of boards to provide effective oversight has increased in the last 12 months, compared to 19 percent of investors. Similarly, 33 percent of directors say that board effectiveness in overseeing risk has increased compared to 27 percent of investors.
- Differing interpretations of director nominee voting results. Nineteen percent of investors indicate the board should reconsider re-nomination of a director if he/she receives between 11 percent and 15 percent negative shareholder support, compared to only 8 percent of directors. However, an identical percentage of directors and investors believe directors should rethink re-nomination at negative voting thresholds of 16 percent to 20 percent and 21 percent to 30 percent.
For more stories related to corporate board issues, check out InsideCounsel's coverage below:
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