Investors’ suggestions include proportional limits and absolute caps on executive pay
Consultation by proxy advisory firm ISS as it drafts its guidelines for voting recommendations next year show investor concern about the magnitude of executive pay, a focus on boardroom gender diversity and a lack of tolerance for unilateral adoption of bylaw amendments that affect shareholders’ rights.
Responses from more than 370 investors ‒ including dozens that manage assets of more than $100 bn ‒ also show investors are placing a high degree of emphasis on disclosure regarding the selection and tenure of audit firms, ISS says in a press release announcing the results of its consultation.
The consultation, which also includes responses from 255 corporate issuers and their representatives, shows that 72 percent of investors believe a board should never unilaterally adopt bylaw amendments that diminish shareholder rights, while 20 percent say ‘it depends’ on other factors. Meanwhile, 44 percent of issuers say boards should be free to adopt any amendment they want as long as it’s legal, and 34 percent say ‘it depends’.
ISS responses highlight a concern for board diversity with 60 percent of investors and 75 percent of issuers taking the matter into consideration when evaluating a board, ISS says. About 17 percent of investors and 7 percent of issuer respondents say they do not take board diversity into account at all. No investors and only 9 percent of issuers say they would take diversity into account when evaluating a board nominee.
About a quarter of investor respondents don’t focus on the overall magnitude of pay when considering pay plans, according to the consultation, but instead focus on incentives and other issues. About 60 percent of investors, however, say they have a threshold for overall size of executive compensation, even when a company is performing well.
‘Suggested remedies vary: 27 percent support relative proportional limits based on the degree of outperformance versus the company’s peer group; 19 percent favor absolute limits on CEO compensation regardless of performance; and 14 percent advocate for proportional limits on compensation in relation to absolute company performance,’ ISS says.
