PwC's 2014 Annual Corporate Directors Survey Highlights - Executive Compensation and Director Communications

Trends Shaping Governance and the Board of the Future

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Oct 07, 2014, 11:07 ET

NEW YORK, Oct. 7, 2014 /PRNewswire/ -- Executive pay remains a hot topic that will continue to impact board practices, according to PwC's 2014 Annual Corporate Directors Survey. Moreover, directors report that they are devoting even more time and attention to the critical issue of appropriate compensation.

In addition to executive pay, increasing expectations about director communications is another major trend shaping the board of the future.

"With four years of 'say-on-pay' behind us and equity markets rising to new levels, we asked directors to give their current perspective on compensation oversight," said Mary Ann Cloyd, Leader of PwC's Center for Board Governance. "As for stakeholder communications, boards need to determine their role—and evaluate their processes and procedures governing such communications. To this end, we asked directors about their current behaviors and practices."

In the summer of 2014, 863 public company directors responded to PwC's survey. Of those, 70% serve on the boards of companies with more than $1 billion in annual revenue.

In today's release, PwC highlights director sentiments related to these particular trends:

Compensation consultants continue to have the strongest influence on director decisions about executive compensation. Forty-eight percent of directors describe them as very influential, up 12 percentage points from 2013. Proxy advisory firms also saw their influence increase, albeit modestly, as 51% of directors describe them as at least moderately influential, compared to 49% last year. CEO pressure has declined as an influence; only 39% of directors describe it as moderately or very influential, compared to 45% last year.
Eighty-four percent of directors at least somewhat agree that "say-on-pay" voting caused their board to look at compensation disclosures in a different way, and 83% say it at least somewhat increased the influence of proxy advisory firms. Nearly three-quarters of directors at least somewhat agree that "say-on-pay" increased shareholder dialogue—but 66% do not believe it effected a "right-sizing" of CEO compensation.
More than eight in ten directors believe proxy advisory firms use a "one-size-fits-all" approach to governance and that their business model creates potential conflicts of interest. A similar percentage say proxy advisory firm policies do not align with company needs or investors' best interests.
Director communications with stakeholders increased across all constituencies. Particularly noteworthy is that 30% of directors say they enhanced communications with the company's employees—the largest year-over-year increase of any individual group. Also, a greater percentage of directors are communicating with institutional investors, as 66% now say they do so, compared to 62% last year.
Despite increased director-stakeholder communications, directors still have many concerns. Ninety-four percent of directors are at least somewhat concerned about the potential for mixed messages and nearly nine in ten are concerned about the "agendas" of some investors. Directors also continue to be worried about violating Regulation Fair Disclosure (Reg. FD)—89% are at least somewhat concerned.
More than half of directors have not held discussions about company protocols and practices in preparation for director-shareholder interactions. Almost half of directors have not discussed company protocols and practices regarding the process by which shareholders can request direct dialogue with the board, the particular director(s) who would participate in such a dialogue and the permissible topics for discussion.

For more information on this year's survey findings specific to executive compensation and shareholder communications, please visit: www.pwc.com/us/directorssurvey.

Board governance trends discussed in-depth as part of this series include: Board performance and diversity; Board priorities and practices; IT and cybersecurity oversight; and Strategy and risk oversight.

About PwC's Center for Board Governance

PwC's Center for Board Governance is a group within PwC whose mission is to help directors effectively meet the challenges of their critical roles. This is done by sharing governance leading practices, publishing thought leadership and offering forums on current issues.

For more information, please visit http://www.pwc.com/US/CenterForBoardGovernance.

About PwC US

PwC US helps organizations and individuals create the value they're looking for. We're a member of the PwC network of firms, which has firms in 157 countries with more than 195,000 people. We're committed to delivering quality in assurance, tax and advisory services. Find out more and tell us what matters to you by visiting us at www.pwc.com/US.

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