What 1,000 Directors Say About Executive Compensation
from
November/December 2003
by Colin Leinster
Executive pay, especially that of CEOs, dominates the headlines, and the members of the compensation committee often seem to be occupying seats every bit as uncomfortable as those filled by their siblings on the audit committee—particularly if the CEO is underperforming. This magazine devoted 22 pages to the subject in our last issue.
But what do directors themselves say? Is executive comp in need of a fix? How do you check to see if your CEO is earning his keep? How much does a company have to pay to get a good chief executive? What effect, if any, has public and regulatory scrutiny had on the ability of boards to recruit top people?
Here are the highlights of how more than 1,000 directors answered these and other questions in a survey conducted by Corporate Board Member and the management consulting firm Towers Perrin.
Almost all the respondents clearly believe that some change in how top executives are paid is necessary . But other results show directors sticking to a more constant course—a big contrast with what Gary Locke, who heads the compensation consulting practice at Towers Perrin, calls the “overcaffeinated” view of executive comp “held by those who look from afar and opine. You get a more rational view from those in the trenches.” For example, more than 39% of the directors say that reforms will have no impact on their ability to recruit top talent, vs. just over 2% who expect a significant impact.
The lack of previous comparable data—from five years ago, say—makes other conclusions harder to reach. More than 35% of the directors assert that they’d spend whatever it takes to recruit a new CEO, but almost as many say they’d merely match what they pay their current CEO. Is it a close race between two viewpoints? Or, more likely, as Locke suggests, does the absence of earlier data mask a big change? Is the number of directors who’d pay anything to land a celebrity CEO just for the sake of it actually giving way to a growing number who are more conscious of value?
Locke sees surprises in the findings. Among them: Fewer than 42% of the respondents predicted a decrease in stock options as a component of executive pay; he had expected “a clear majority to say yes.”
