Sixty-four percent of companies surveyed by Towers Watson are moderately concerned about having to show the relationship between executive pay and corporate performance, as required under the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Only 10% are greatly or very concerned, while 26% are not very concerned or not concerned, according to findings of the survey July 28.
The SEC plans to propose and finalize implementation rules for the Dodd-Frank act’s provision on executive pay and corporate performance sometime between August and December, although there is no indication they would take effect for the 2012 proxy season, Steven Seelig, executive compensation counsel, Towers Watson Center for Research and Innovation, said in an e-mail.
Some 35% of responding companies believe it is too soon to tell what influence contrasting executive pay with corporate performance will have on shareholder advisory votes on executive compensation, while 28% believe it will be moderate, 10% significant, 3% great, 12% not significant and another 12% none.
Only 20% of companies already provide additional information in their compensation disclosure and analysis statement describing the alignment between executive pay and key performance metrics, a Towers Watson report on the survey said.
Towers Watson surveyed executive compensation executives at 179 U.S. companies June 16-29 on corporate reaction to shareholder non-binding voting on executive compensation, which all companies started to conduct this year under a requirement in the Dodd Frank law, enacted last year.
Some 34% of companies responding believe proxy-voting advisory firms are somewhat influential on shareholders in their say-on-pay voting, while 29% believe they have been influential, 21% very influential, 11% not influential and 5% extremely influential.
But 44% of the companies surveyed believe proxy advisory firms have been somewhat influential on executive pay design, while 24% believe they have been influential, 14% very influential, 13% not influential and 4% extremely influential. Overall, the findings suggest say on pay “has been a catalyst for further refinement of executive pay programs and governance processes,” according to the report.
Some 91% of companies surveyed have made or are planning or considering at least one change in pay-setting process for 2012 as a result of their experience in the first-ever say-on-pay voting, according to the findings.
Of all the companies surveyed:
• 44% made changes in executive pay, including pensions, deferred compensation, severance, perquisites and tax gross-up practices of reimbursements for tax on compensation, while 21% are considering such changes;
• 26% made changes in base salary, incentive pay and other executive core compensation programs, while 17% are considering changes in core compensation programs;
• 44% are performing additional analyses on the link between executive pay and company performance;
• 22% said their board is more engaged in the executive pay process;
• 41% are devoting more attention in preparing a company’s compensation disclosure and analysis statement, while 13% said their board is more engaged in developing the CD&A; and
• 10% are taking other actions.
The findings indicate companies “will now have more formal processes in place to accomplish many of these tasks that will make them more efficient,” Mr. Seelig said in the e-mail. “This will free up time to put more focus on areas such as refining their pay-setting process.”
Among other findings, 82% of responding companies took at least one action in preparation for say-on-pay voting this year to achieve shareholder support and positive outcome.
Of all companies surveyed, 56% reached out to shareholders, 53% communicated with proxy-voting advisory firms; 40% hired a proxy soliciting firm; 32% made changes in executive pay programs; 7% filed additional proxy materials; and 18% took other action.
The impact of say on pay “has been greatest on companies that received less than 80% shareholder support in voting or a negative-vote recommendation from proxy-voting advisory firms, said a report about the survey.
Some 71% of companies that received less than 80% shareholder support “plan to devote more focus and effort o executive pay next year compared with this year,” the survey found. Among those companies, 75% are performing additional analyses of the link between their executives’ pay and corporate performance, while 41% of the companies that received at least one proxy-voting advisory firm negative recommendation “also plan to spend more effort next proxy season,” the report said.
Some 16% of responding companies received less than 80% shareholder support, according to the results of a survey.
Some 70% of respondents said shareholder support on say-on-pay voting conformed to corporate expectations, while 21% said shareholder support was significantly or somewhat above expectations and 9% said it was significantly or somewhat below expectations.
