April 19, 2024
Volume XIV, Number 110
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Executive Compensation Disclosures a Wasted Effort?
Thursday, March 19, 2015

Are the ever-increasing US public company disclosures, particularly those dealing with executive compensation, even helpful to the investing public? A recent study commissioned by the Stanford University Rock Center for Corporate Governance, RR Donnelley and Equilar suggests the answer may be no, even among sophisticated institutional investors. The 2015 Investor Survey notes that only 38% of institutional investors “believe that information about executive compensation is clear and effectively disclosed” and  65% of them note that the “relation between compensation and risk is ‘not at all’ clear.” And just in case the SEC is reading this, do not be confused into thinking that more fulsome disclosures will solve the problem as 48% of those polled believe that current proxies are already too long and “difficult to read and understand.”

 

While the study observes that unhappiness with current compensation disclosure may stem from “dissatisfaction with pay practices in general,” a slight majority of respondents noted that “say on pay” (non-binding shareholder votes on executive compensation practices) changes are “effective in influencing or modifying pay practices.” The study also notes that investors are generally satisfied with, and find to be clear, current disclosures “relating to pay ratios (the ratios of CEO pay to median employee pay and CEO pay to other named executive officer pay), corporate political contributions, corporate social responsibility and sustainability, and CEO succession planning.” So maybe there is hope that companies can get it right when it comes to executive compensation disclosures.

 

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