PWC Study Reports Directors Focused on Say on Pay, But Rate Proxy Advisors’ Work Below Average

September 28, 2012

Nearly two-thirds of directors report that their companies’ compensation practices changed in response to say on pay, and in making pay decisions, the views of the independent compensation consultant were the most influential according to PWC’s 2012 Corporate Directors Survey.  
 
Voices of Influence
When asked about individuals or entities having the greatest influence over compensation decisions, the majority (86%) of directors cited compensation consultants as influential or very influential, followed by the CEO (79%) and institutional investors (54%).  The survey highlights that despite extensive reporting of executive compensation in the media over the past two years, 60% of directors cited the media as having no influence over their decision processes.
 
Proxy Advisory Firms
The survey also asked directors to estimate the impact of proxy advisory firms upon their companies’ say on pay votes and to evaluate proxy advisors’ performance.  Consistent with the Center’s work and academic research, almost two-thirds (61%) of directors indicated that they believe proxy advisors influence more than 20% of proxy votes at their company, with nearly a fifth (18%) estimating the influence at more than 40% of proxy votes.  In spite of this influence, however, almost half of directors indicated they considered both the voting recommendations and thoroughness of work of proxy advisory firms to be below average.
 
Say on Pay
Not surprisingly, the report indicates that 64% of companies (and nearly all companies with less than 70% prior year support) took action based on their say on pay vote, with the most common changes including modification of proxy disclosure (41%), modification of pay plans to be more performance-based (29%) and increased engagement with proxy advisory firms (23%).  Interestingly, more directors reported that their companies increased engagement with proxy advisory firms (23%) than with investors (19.1%), perhaps reflecting the broad size of companies included.  The survey notes that 2.5% of directors reported that their companies decreased compensation in response to say on pay votes.
 
The survey, conducted this summer, includes responses from 860 directors of public companies across a range of industries, with more than 70% of respondents from companies with $1 billion or more in annual revenue.