Few U.S. Companies Well Prepared for Executive Say-on-Pay Legislation, Towers Watson Survey Finds

Jun 29, 2010, 08:00 ET from Towers Watson

NEW YORK, June 29 /PRNewswire-FirstCall/ -- Relatively few U.S. companies are well prepared to put their executive pay programs up to a say-on-pay shareholder vote, although many are taking steps to get ready if pending legislation that would give shareholders a greater voice in executive pay becomes law, according to a forthcoming survey by Towers Watson (NYSE, Nasdaq: TW), a global professional services company.

The Towers Watson survey found that only 12% of respondents said they are very well prepared for the say-on-pay legislation, while 46% said they were somewhat prepared. Just under one-fourth of respondents (22%) didn't know if their companies were ready. The financial reform legislation awaiting final action in the House and Senate includes a say-on-pay provision that would give shareholders of publicly traded U.S. corporations a nonbinding vote on executive pay.

"Given the amount of work companies will need to do to adapt to life in a say-on-pay environment, it's noteworthy that relatively few companies feel they are well prepared," said Andrew Goldstein, a leader in Towers Watson's Executive Compensation business. "Companies understand that they'll need to do more than simply describe their pay programs in their proxies and are beginning to take meaningful steps so that they are prepared."

When asked what actions they are taking or planning in preparation for the say-on-pay legislation, nearly seven out of 10 (69%) said they were identifying potential executive pay issues and concerns in advance, while six in 10 (60%) said they were improving their Compensation Discussion & Analysis to better explain the executive pay program's rationale and appropriateness for the company. In addition, many companies indicated they are engaging with proxy advisors (44%) to discuss areas of concern, meeting with key institutional shareholders (29%) and preparing a formal communication plan (23%).

The Towers Watson survey also found that more than one-half (59%) of respondents believe that proxy advisory firms have substantial influence on executive pay decision-making processes in U.S. companies. However, 42% said that guidelines established by proxy advisory firms have had no or minimal impact to this point on the design of their executive compensation programs.

"The influence of proxy advisory firms and institutional shareholders on executive compensation programs has increased steadily over the past few years and is likely to increase further in a say-on-pay world," said Goldstein. "As a result, we believe companies should be prepared for even closer scrutiny of their executive pay plans and policies, and will need to step up their communications with these groups through direct dialogue and even better proxy disclosure to be assured of strong support. Companies that fail to develop effective say-on-pay strategies and take steps now to make their compensation programs shareholder-friendly risk becoming lightning rods in this new environment."

About the Survey

The Towers Watson Executive Say-on-Pay Flash Survey was conducted online in June 2010 and is based on responses from 251 U.S. publicly traded and privately held corporations representing a cross section of industries. The full results of the survey will be available in July.

About Towers Watson

Towers Watson (NYSE, Nasdaq: TW) is a leading global professional services company that helps organizations improve performance through effective people, risk and financial management. The company offers solutions in the areas of employee benefits, talent management, rewards, and risk and capital management. Towers Watson has 14,000 associates around the world and is located on the web at towerswatson.com.

SOURCE Towers Watson