Investor interest in executive compensation
Globally, more than half (56 percent) of respondents report that investors have asked questions around executive compensation at least occasionally over the past 12 months.
Just over a quarter (26 percent) say investors have not asked about the topic during the past year. It is also notable that 18 percent of respondents do not know whether such questions have been asked.
Among those at mega-caps, just 8 percent report investors never having asked questions in the past 12 months, while 40 percent say investors have asked questions either frequently or very frequently. Indeed, respondents at mega-caps report the most-frequent inquiries, with an average score of 3.4 based on a scale where one is ‘never’ and five is ‘very frequently’.
Globally, respondents on average report a frequency score of 2.4 – between ‘occasionally’ and ‘sometimes’ – for the previous 12 months. Those at small-cap companies report the least-frequent investor questions (average score 2.2), though their peers at mid-caps (2.4) and large-cap companies (2.3) report similar scores.
Respondents in Europe (2.8) on average report more frequent questions than those in North America (2.3).
The trend on balance is toward more frequent questioning from investors about executive compensation plans. Globally, 22 percent of respondents say there has been a slight or large increase compared with two years ago, against 4 percent who report a slight or large decrease, leaving a net 18 percent seeing an increase. The equivalent figures (20 percent reporting an increase, 4 percent a decrease) are very similar over a three-year period.
The trend is more marked at the very largest companies: 40 percent of those at mega-caps report a slight or large increase in questions over the past two years, with 4 percent having seen a slight decrease, leaving a net 36 percent reporting an increase in frequency. That net figure of increased frequency of questions is 17 percent among those at both small and mid-caps and 18 percent among those at large-cap companies.
Among respondents in Europe, 35 percent say the frequency of investor questions is up and none report a decrease. By comparison, just 15 percent of those in North America report increases and 4 percent decreases.
Respondents were asked what questions investors ask about their company’s executive compensation plans. Their comments include:
Details of proposal to exercise discretion following the chair of the [remuneration committee] reaching out to major investors
It varies, but mainly about the components (short term vs long term, time-based vs performance-based) and any special awards
Cost of short-term incentive plan
Mainly about the impact of Covid-19
What the increase will be for the upcoming year
Pension for CEO
How does the company ensure compensation governance practices while remunerating executive management?
What is the role of ESG?
Long-term vs short-term incentives, components/ factors/determinants of short-term incentives and ESG’s role in compensation decisions, particularly evaluations of immediate past performance
Performance compensation
Structure, performance metrics, target-setting process, compensation philosophy
Limited inquiries after bankruptcy, as executive compensation was brought down across the board
How much will CEO make and is that proportionate?
Alignment to strategy and shareholder return
We have put a lot of effort into aligning with best practice so in reality there is no negative feedback
Disclosure of CEO compensation, CEO-to-employee pay ratio
They want to understand the strategy behind the compensation plan. Europe-based investors frequently advocate for very long stock-holding periods and suggest we adopt them
Process for setting compensation and assessing out-turns
Disclosure plus [short-term] and [long-term] incentives plans
Investors are keen to ensure they are aligned with shareholders’ interests
Goal-setting for performance pay plans, extent of pay considerations
ESG metrics in executive compensation
