Towers Watson (ticker: TW, exchange: NYSE Archipelago Exchange (.N))
News Release -
Directors, Institutional Shareholders at Odds Over Whether Executive Pay Model is ImprovingWatson Wyatt Study Finds Groups Agree That Executive Pay Disclosure Rules Are Helpful but Need ImprovementWASHINGTON, Feb 28, 2008 /PRNewswire-FirstCall via COMTEX News Network/ -- Corporate directors and
institutional investors disagree over whether the U.S. executive pay model is
changing for the better, but both groups feel the current model has hurt
corporate America's image. These are the findings from a new study by Watson
Wyatt Worldwide, a leading global consulting firm.
"While directors and institutional shareholders agree on key executive pay
issues, they don't see eye-to-eye on other areas," said Ira Kay, global
director of compensation consulting at Watson Wyatt. "While directors believe
the system generally works, institutional investors generally feel the model's
flaws run deeper and require more substantial changes. Clearly, more work
needs to be done."
Nearly two-thirds of directors (63 percent) think the executive pay system
is improving compared with just 36 percent of institutional investors,
according to Watson Wyatt research. The two groups also diverge on whether the
executive pay model has helped to improve company performance. While two of
three directors (65 percent) believe it has, only 39 percent of institutional
investors feel that way. However, most directors and institutional investors
(75 percent) believe the executive pay model has hurt corporate America's
image. A majority of both groups also believe the system has led to resentment
among the rank and file and has resulted in excessive executive pay levels.
The Watson Wyatt 2008 Report on Directors' and Investors' Views on
Executive Pay and Corporate Governance is based on a survey of two groups --
163 directors who serve on corporate boards of companies that collectively
earn $1.5 trillion in annual revenue and 72 investment and pension fund
managers who manage more than $5 trillion in assets.
Directors, Institutional Investors Agree and Disagree on U.S. Executive Pay
(Percent of respondents who agree with each statement)
Overall, the U.S. executive pay Directors Institutional
model at most companies ... investors
Has improved corporate performance 65% 39%
Is changing in a positive
direction 63% 36%
Has hurt corporate America's image 75% 75%
Has led to excessive levels of
executive pay 61% 86%
Has created employee resentment 60% 78%
Numbers are percentage of respondents who agree with each statement.
The study also found that both directors and institutional investors
believe the Securities and Exchange Commission's new disclosure requirements
have been helpful, although improvements are still needed. For example, more
than 80 percent of institutional investors and nearly three-fourths of
directors feel the new Compensation Disclosure and Analysis sections in
companies' proxy statements improve pay disclosure and transparency. While
most directors and institutional investors believe the new disclosure rules
will be helpful to shareholders, neither group thinks they will have much
impact on executive pay levels.
"Enhanced disclosure is likely to come into focus over the next several
weeks as companies begin to release their proxy statements. Directors will be
in a strong position to use these disclosures as a way to convince
institutional investors the pay model is working, particularly if they are
able to negotiate shareholder-friendly changes to their executive compensation
programs," said Kay.
Other findings from the study include:
-- It is difficult to find top talent. Only 6 percent of directors and 14
percent of institutional investors do not believe firms should
typically find top executive talent from inside the organization, while
56 percent of directors and 45 percent of institutional investors
prefer to promote from within. The rest are neutral.
-- While nearly half (46 percent) of institutional investors believe that
executive pay opportunity can be significantly reduced without losing
key talent, only one-quarter (25 percent) of directors agree.
-- Both directors (94 percent) and institutional investors (85 percent)
agree that severance and change-in-control agreements should be set at
or below market. And even more (96 percent of directors and 90 percent
of institutional investors) believe the same about perquisites.
Copies of Watson Wyatt's 2008 Report on Directors' and Investors' Views on
Executive Pay and Corporate Governance are available at
About Watson Wyatt Worldwide
Watson Wyatt (NYSE, Nasdaq: WW) is the trusted business partner to the
world's leading organizations on people and financial issues. The firm's
global services include: managing the cost and effectiveness of employee
benefit programs; developing attraction, retention and reward strategies;
advising pension plan sponsors and other institutions on optimal investment
strategies; providing strategic and financial advice to insurance and
financial services companies; and delivering related technology, outsourcing
and data services. Watson Wyatt has 7,000 associates in 32 countries and is
located on the Web at http://www.watsonwyatt.com.
SOURCE Watson Wyatt Worldwide