The Advisors' Blog

– Subodh Mishra, ISS Governance Exchange

Six in 10 U.S. companies conducted analyses to assess “how closely” executive pay levels align with company performance, yet nearly two-thirds of those companies did not disclose the results of those analyses in their 2014 proxy statements, according to a recently released Towers Watson survey. The Towers Watson survey found that 60 percent of the 104 U.S. companies polled in September and October conducted a pay-for-performance analysis that compares both the company’s financial performance and pay positioning with those of its peers in the marketplace. Among those companies, nearly two-thirds (63 percent) did not disclose that they conducted an analysis or the results of the analysis in their 2014 proxies. Thirty percent of respondents disclosed the findings of the analysis, while the remaining 7 percent told shareholders they performed the analysis but did not reveal the details, Towers noted in an Oct. 30 statement. In a similar survey two years ago, 44 percent of companies did not tell shareholders that they performed a pay-for-performance analysis.

When asked why they did not disclose the pay-for-performance analysis, just over three-fourths of respondents said they were waiting for forthcoming Securities and Exchange Commission disclosure rules to be issued before doing so, while one-third also said they were concerned about setting a precedent that will require similar disclosure in the future. About two in 10 respondents said the analysis did not yield incrementally valuable information to shareholders, Towers said.

Interestingly, a vast majority of respondents analyze pay-for-performance alignment in ways that may be at odds with what the SEC may require. For example, among companies that conducted a pay-for-performance analysis, nearly all (96 percent) compared their performance to a company-defined peer group. Additionally, the majority of respondents (79 percent) used a three-year period to measure performance. And more than half (60 percent) use a definition of compensation other than that disclosed in the Summary Compensation Table, as required by the SEC.

Companies continued to make changes to their executive pay programs to further strengthen the link between pay and performance, the survey noted. More than four in 10 (43 percent) changed their peer comparison group, while a slightly lower percentage (40 percent) changed the performance measures used to determine incentive payouts. Slightly more than a quarter of the respondents used more demanding performance goals and changed the equity pay mix.