Big Disparity in Views of Directors and Investors on Executive Pay

By Cydney Posner

According to this article from the WSJ, "Directors and Investors at Odds on Executive Pay," , what we have here is a failure to communicate. In a new survey by Towers Watson and proxy solicitation firm Alliance Advisors that polled both directors and investors, almost three-fourths of investors say executive pay is excessive, two-thirds think it is too heavily influenced by management, and only one-third agree that executive pay is closely linked to corporate strategy. Directors "overwhelmingly disagree on all these points," with only one-fifth of directors concurring that executive pay is too high, one-quarter indicating that management has too much influence over pay and 70% believing that executive pay is closely tied to corporate strategy. According to the WSJ, "[t]he wide divergence in views suggests directors are wrong to infer from the typically high levels of approval in say-on-pay votes that investors on the whole support how they pay executives." According to a Towers Watson representative, " '[t]he say-on-pay vote is too much of a blunt instrument…. Investors may find a lot not to like in an executive pay package but vote for it anyhow. Things have to be pretty bad to say you don't want to support the entire program.'" The WSJ observes that these findings are similar to those resulting from a November survey by PwC. In addition, in the PwC survey, "investors preponderantly said that even a minority of 30% or fewer ‘no' ballots in the say-on-pay vote should be a signal to adjust the pay program, while half of directors thought otherwise."

Can we talk? The Towers Watson survey showed that two-thirds of investors thought that "more engagement with shareholders would help fix what's wrong with pay. But less than a fifth of directors agreed. [According to the WSJ, directors] may want to reconsider that. [The Towers representative] said investors don't understand all the ‘complex discussions' that take place in the boardroom about pay, and opined, ‘I think if you were to put investors in the boardroom, making decisions given all the facts and circumstances, they would have a different perspective than today.'"

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