Questioning High Approval Rates for Executive Compensation
Overwhelmingly, shareholder votes are approving executive compensation. A survey conducted by consulting firm Towers Watson found that 90% of companies said their executive pay packages received approval ratings of 71% or higher. More than half of all companies (61%) had approval ratings of 90% or higher.
The Dodd-Frank Wall Street Reform and Consumer Protection Act requires companies to hold a shareholder vote on compensation at least once every three years (www.sec.gov/news/press/2011/2011-25.htm). The votes are non-binding, meaning the companies do not have to honor shareholder requests on pay. Nonetheless, as the numbers show, few compensation plans are voted down.
There are reasons for shareholders to question whether the proposed compensation packages are in their best interest. Most companies surveyed (81%) said they defined the peer group they used to analyze executive compensation. In contrast, just 34% used a proxy adviser peer group and only 17% used an industry index. The definition of the peer group is important because slightly more than half (52%) of companies use a summary compensation table pay to perform the analysis. (The summary compensation table is required by the Securities and Exchange Commission to show what executives are earning.) In other words, compensation committees are handpicking the companies to measure pay against.
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