Bloomberg News

‘Say-on-Pay’ Votes May Lead Boards to Revisit Pay, Survey Finds

October 12, 2011

Oct. 12 (Bloomberg) -- U.S. corporate board members would be willing to reconsider executive compensation packages if shareholders express dissatisfaction through non-binding “say- on-pay” votes, according to findings from an annual director survey conducted by PricewaterhouseCoopers LLP.

With a second proxy season approaching after the Dodd-Frank Act required companies to let shareholders express their views, 72 percent of directors said their boards would review pay plans even if executives win more than 50 percent support, New York- based PricewaterhouseCoopers said in the survey released today.

“This data suggests that even at lower levels, some board members would have concern,” said Donald Keller, a partner in the firm’s center for board governance who analyzed the survey.

The votes were established this year after lawmakers responded in Dodd-Frank to complaints that incentive-based pay fueled excessive risk-taking before the 2008 credit crisis. The PricewaterhouseCoopers survey aimed to find out how boards are responding to this and other changes to corporate governance.

Though the votes are non-binding, compensation experts say executives who tally less than 80 percent approval should see that as a sign of shareholder discontent.

“Boards should be reaching out to their shareowners if there is a significant against vote on say-on-pay, whether it’s a majority or not,” Amy Borrus, deputy director for the Washington-based Council of Institutional Investors, said in an interview.

Easier to Understand

Two-thirds of directors said their firms have changed the way they communicate executive pay ideas to investors, with many of them aiming to make the plans easier to understand, according to survey responses from 834 directors.

When it comes to their chief executive officers, board members expressed greater confidence about steering pay than they did last year, with 49 percent saying boards are in control of CEO pay -- 15 percent more than in the 2010 survey.

Directors were less confident about their firms’ ability to handle risk. Fewer than one in five thought their board was doing a “very effective” job reducing risk from financial, environmental or computer-security threats.

“Because of the financial crisis, there were questions raised about the role of the board and I think the boards are reacting to that,” Keller said. Directors seem reluctant to exhibit assurance because of the range of things that have been proven to go wrong, he said.

Information technology was seen as a particular trouble spot, with 52 percent saying it’s difficult to get technology expertise onto their boards.

One area in which technology has found its way into the board is in the use of tablets and smartphones, with 42 percent of respondents now using them to work with board materials, and 38 percent wanting their boards to start using such gadgets.

--Editors: Gregory Mott, Lawrence Roberts

To contact the reporter on this story: Jesse Hamilton in Washington at jhamilton33@bloomberg.net

To contact the editor responsible for this story: Lawrence Roberts at lroberts13@bloomberg.net


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