Corporate boards of directors and institutional investors disagree over whether the executive pay model has helped improve corporate performance, but they agree it has led to excessive levels of compensation, according to a Watson Wyatt Worldwide study released today.
Some 65% of responding directors believe the model has improved corporate performance, compared to only 39% of institutional investor respondents, a Watson Wyatt survey for its study found. But 61% of directors and 86% of institutional investors believe the model has led to excessive executive pay levels, and 75% of each group believes the executive pay model has hurt corporate Americas image.
Some 63% of directors to a Watson Wyatt survey think the executive pay system is improving, compared with 36% of institutional investors, but the pay model system has created employee resentment, according to 60% of directors and 78% of institutional investors.
Among recommendations for improving the pay model, the study says boards should evaluate performance-based portions of executive pay plans and increase the use of performance-contingent (long-term incentive) programs and the level of executive pay opportunity to reflect pay for performance.
The Watson Wyatt 2008 Report on Directors and Investors Views on Executive Pay and Corporate Governance: Managing Executive Compensation in the Shareholders Interests is based on a survey of 163 directors on the boards of 230 publicly traded companies and 42 privately held companies or non-profit organizations that earned a combined $1.5 trillion in annual revenue; and 27 investors from union or public pension fund or foundations, and 45 from private-sector institutions that manage a total of $5 trillion in assets.