By Cydney Posner
This article in the WSJ, Investors Weigh Concerns for Next Proxy Season, highlights key issues for large investors based on a recent ISS survey. Major issues identified include the correlation between executive compensation and company performance (no surprise there), as well as desire for more details on corporate lobbying activities and for standardized information about executive take-home pay (presumably, pay actually realized). According to the article, interestingly, ISS "found executive compensation and board competence were the top concerns cited by North American and European investors for the upcoming season, while board independence is the top issue in Asia Pacific countries and developing markets."
Not surprisingly, there is quite a disparity between the views of investors polled and those of companies. The article reports that more "than half of investors polled said greater disclosures about lobbying activities would be helpful, while the majority of company representatives said such information would not be beneficial. Half of investors said they would examine realized and realizable executive pay measures when considering how compensation is linked to performance. However, 36% of investors said they would prefer if these measures were based on a standardized formula, while only 29% said were comfortable with measures provided by the companies. In evaluating corporate performance, more than half of investors said they would be willing to look at measures other than total shareholder return, such as earnings or revenue figures." Two-thirds of investors preferred that ISS create its own peer groups for purposes of its executive comp evaluations, while most companies said ISS should use the company's peer group.
Investors would also like to see smaller reporting companies adopt annual say-on-pay votes, while more than 40% of companies polled wanted triennial votes. In addition, the article reports that a majority of investors "would be inclined to vote against a company's executive compensation plan if there is a lack of performance-based long-term incentives, executives get interest free or forgivable loans to exercise options or buy stock, and when executive employment agreements provide change-in-control payments due to a single trigger. Almost half of investors said any pledging of shares by executives or board members to margin accounts was ‘significantly problematic.'"
Executive severance packages also increasingly prompted investor ire: "where shareholder returns are lagging, more than 80% of investors surveyed said they would consider it to be ‘problematic' if an executive received a severance settlement after retiring or resigning, and nearly 90% said they would oppose new severance agreements entered into immediately before an executive's exit. Less than half of investors said severance or change-in-control terms in executive contracts were a ‘critical' issue in the survey last year."