Early Returns on Executive Compensation: Higher Pay, More Shareholder Involvement

by Gary Larkin for The Conference Board – Governance Center Blog, April 29, 2011.

In the first year of mandated advisory votes on executive compensation plans, two observations can be made: large public companies are shifting pay practices toward pay for performance and CEO compensation at most non-banks is back to the higher pre-financial crisis levels.

On one hand, an argument can be made that since the recovery — as tepid as it is — has begun, companies are more apt to go back to the old ways of exorbitant executive compensation. On the other hand, an argument can be made that the higher compensation reflects higher performance by those companies and that there is focus on pay for performance, where there wasn’t before.

So what is the reality of the situation? If you hear one important institutional investor tell it, you would believe the higher compensation reflects their companies’ higher profits. But at the same time many of those S&P 500 companies are seeking out shareholders’ views on the compensation plan itself.

“A lot of companies went away from [rewarding stock] options to straight cash [rewards] that were less structured to the stock market price,” Michael P. McCauley, senior officer of investment programs and governance at the State Board of Administration of Florida, told me earlier this week. The SBAFLA voted 3,566 proxies in 2010, according to its 2011 Corporate Governance Report.

In fact, he mentioned to me that a lot more companies are reaching out to him to discuss their compensation plans prior to the annual meeting. “In the past, we would get dozens of calls a year from companies,” McCauley said. “Now, it’s gone up 20 to 30 percent per year just before the vote takes place.” (continue reading… )


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