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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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Discussion

Donald Myers from Arizona posted about 1 year ago:

I would recommend voting no on all compensation packages. It is clear that Boards have no idea how to set compensation, because so many of the board members are also on the receiving end they are all just patting each other on the back. Moreover so many executives have been given enormous stock gifts they are often a non-trivial part of those voting yes. As repeated articles in the WSJ have and continue to show, the executives run the companies in order to pad their own pockets not to benefit either the stockholders or the employees


Edwin Taylor from Ohio posted about 1 year ago:

there should be a distinction made in executive compensation if the executive is a founding executive as opposed to one brought in through an outside headhunter. A founder executive should benefit from growth and profit he generates no matter what the amount. A succeeding executive from the outside should start at a percentage times the average salary of the employee staff, like the Japanese.


Robert Gariepy from Wisconsin posted about 1 year ago:

If stockholders are truly the owners of the company, why don't we see more of the income passed on in the form of dividends? I would like to see a statement in summary compensation reports as to what it costs per share to fund these bloated compensation packages. Also, why is it that there never seems to be a negative side to the compensation package regardless of performance? If they fail, they still get a golden parachute.


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