One third of US firms have changed compensation plans as a direct result of shareholder pressure as investors, the media, policy makers and employees heighten their scrutiny of executive pay, according to a study by the National Association of Corporate Directors (NACD).
At the same time, almost 60 percent report that their boards have expanded explanations in the proxy statement regarding compensation decisions due to shareholder feedback.
The findings are part of the Report of the NACD Blue Ribbon Commission on the Compensation Committee study of 1,013 companies. The NACD finds that Dodd-Frank rules, including say-on-pay votes and a requirement that companies disclose CEO compensation as a ratio to the median pay of employees, are adding to existing shareholder pressure and media attention.
The report includes 10 recommendations for compensation committees, including ‘that the compensation committee and board work together to establish an executive compensation philosophy that supports the company in creating long-term, sustainable value.’
‘Setting executive compensation may be the most important and most challenging responsibility shouldered by boards,’ says Barbara Hackman Franklin, chairman of the Blue Ribbon Commission, in a press release announcing the survey results. ‘Compensation plans communicate not only the strategic goals the company wants to achieve, but also how it wishes to accomplish them.’
A study released in April by proxy advisory firm ISS shows that compensation for CEOs in the US rose by an average of 12.7 percent last year, mainly due to increases in the value of pension plans.
The NACD says its corporate governance survey of directors also finds an increasing use of formal CEO succession plans, a lack of satisfaction about the information provided to boards regarding cyber-risks and rising time commitments for directors. The association says directors want changes to allocations of responsibility in the oversight of risk and that most boards are using lead directors.
