Squarewell Partners recently solicited input from a number of large institutional investors (CalSTRS, Nuveen/TIAA-CREF, DWS, BNP Paribas AM, and Deka) to understand their views on executive pay - specifically: (i) why they believe it is important; (ii) their primary concerns and sensitivities; (iii) how they approach engagement on this topic; and (iv) what they expect from companies in response.
Instructive takeaways include:
- Executive pay is important to investors because - among other things - they see it as a key indicator or reflection of a healthy, well-managed business including the board dynamics, board and CEO accountability, and the corporate culture.
- Investors want companies to design their plans based on company-specific factors in lieu of proxy advisor policies or other "generic" or consensus templates. More specifically, they are looking for simple, transparent, performance-driven plans that are aligned with the company's strategy.
- While some investors are comfortable engaging with company management on executive pay, others want to engage directly with the compensation committee to understand their perspective in setting pay and avoid the inevitable management conflict of interest.
- Investors generally want to know that they are being heard by companies when they express dissatisfaction on pay. If companies don't respond, they may vote against directors, but divesting is an unlikely reaction to a nonresponsive company.
Access the complimentary report: "What Does Pay Actually Say?" on the firm's website here. This post first appeared in the weekly Society Alert!