The Advisors' Blog

– Broc Romanek, CompensationStandards.com

The subtitle of a press release relating to a recent survey conducted by PricewaterhouseCoopers of directors jolted me (the survey results are covered in this CNBC article). I know boards had trouble controlling CEO pay, but I have always figured one of the reasons why the excesses have not yet been fixed is that boards were confident they were doing the right thing. I guess even they realize they have trouble controlling CEO pay – although they may be thinking “it’s those other boards, not the ones that I sit on.”

Anyways, here is an except from the PwC press release (the press release was emailed to me, but is not online):

PwC research found that 58 percent of the 1,110 directors surveyed felt US company boards are still having trouble effectively controlling CEO compensation. The boardroom directors surveyed said the three most important factors that should be considered by compensation committees to improve CEO pay policies are:

– Ensuring peer group companies are realistic (83 percent).
– Re-evaluating compensation benchmarks (82 percent);
– Setting minimum stock ownership guidelines and/or holding periods (65 percent)

And here is a summary of the survey, excerpted from Tom Gorman’s “SEC Actions’ blog:

Board in general

– Over half of the directors indicated that more time and focus should be spent on risk management.

– Over 70% of the directors stated that they do not believe their board should have a separate risk committee, while 67% concluded that the board is very effective at monitoring risk management to mitigate corporate exposures.

– Over half of the directors stated that the board does not receive general and/or specific customer satisfaction research.

– Most directors stated that during the last 12 months the board had discussed an action plan that would outline steps the company would take if faced with a major crisis.

– Almost 80% of directors indicated that sustainability/climate change is already a major focus and no additional time on the question is required.

– Almost 90% of directors surveyed stated that no additional time is required on social responsibility issues because it is already a major focus.

Regulatory and compliance

– Almost 75% of the directors stated that compliance and regulatory issues are already a major focus and do not require more time.

– The top five items identified as “red flags” in signaling a director to step up his/her board involvement are: (1) a restatement of the financial statements; (2) charges or investigations; (3) management missing strategic performance goals; (4) an adverse 404 opinion; and (5) multiple whistle-blower incidents.

– Almost 25% of the companies involved in the survey do not have an FCPA compliance program.

– Significantly less than half of companies in the survey have an FCPA program which covers employees and agents, while almost 20% have a program limited to employees.

Management

– 90% of the directors surveyed concluded that the board is very effective at standing up and challenging management when appropriate.

– 58% of directors stated that U.S. company boards are experiencing difficulty controlling the size of CEO compensation.

Effectiveness of board

– Only about 30% of directors concluded that the company had an effective board evaluation process.

– Over 81% of directors stated that the most important technique in ensuring that directors continue to be effective on the board is an effective evaluation process.