The “say on pay” disclosure provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act will not help the boards of public companies better manage executive compensation, according to a new survey by accounting and consulting firm BDO USA.
The survey of 101 corporate board members at public companies found that 78 percent of them said they did not believe Dodd-Frank's "say-on-pay" disclosure rules would help them better manage the compensation of their key executives. Only 22 percent described the rules as helpful.
Directors who serve as members of their board's compensation committee were even more likely at a rate of 91 percent to say the new rules would not help them manage executive pay. An overwhelming majority of 81 percent of the board members who responded to the telephone survey said they believed shareholder criticism of executive compensation frequently suffers from 20/20 hindsight.
"Board members’ frustration with Dodd-Frank executive compensation mandates illustrated in these findings is consistent with what we have been hearing from our clients," said Randy Ramirez, a senior director on compensation in the Corporate Governance Practice of BDO USA. "Compensation planning is now examined under a microscope on an annual basis, when businesses would benefit from a long-term approach. Pay practices advocated by proxy advisory groups often emphasize immediate pay-for-performance tie-ins, but performance does not always manifest itself on a yearly basis. There needs to be consideration for making smart investments, strategic shifts and other moves that do not lead to immediate measurable returns."
Dodd-Frank's executive compensation mandates seem to have taken a toll on corporate directors, according to the survey. When asked about the topics they would like their board to spend more or less time on, 71 percent of the respondents said they did not want to spend more time on executive compensation. No other topic elicited such a negative response.
While most board members in the survey did not find Dodd-Frank helpful, they also did not see the non-binding nature of the say-on-pay votes as a problem. When asked if the non-binding nature of the Dodd-Frank say-on-pay votes diminished their effectiveness, only 24 percent of the directors in the survey agreed. Three-quarters (76 percent) felt the non-binding nature of the votes did not limit their effectiveness, and directors serving on their board's audit (85 percent) and compensation (79 percent) committees were even more likely to feel this way.
Less than a fifth (19 percent) of the directors in the survey saw the disclosure of change-of-control provisions in executive compensation packages, mandated by Dodd-Frank, as having a negative impact on merger and acquisitions activity. In fact, three-quarters (81 percent) indicated this provision would have no impact on merger activity. Members of compensation (91 percent) committees were even more confident that these disclosures would not adversely affect M&A activity.
When asked about their own compensation as board members, more than two-thirds (69 percent) of the survey respondents said they believed their compensation was commensurate with their responsibilities. Yet, nearly one-third (31 percent) felt their compensation was lacking, given the increased responsibilities and workload brought about by recent regulatory changes. Board members serving on the compensation committee were more likely, at a ratio of 39 percent, to feel their compensation needed to be enhanced.
