A business group including some of the country's largest companies said that corporate governance practices are improving and that the percentage of companies adopting pay-for-performance measures for senior executives continues to rise.
The Business Roundtable's fourth annual survey of corporate governance practices surveyed the association's 160 members, all chief executives of U.S. companies. The 105 executives who responded also reported that the implementation costs of Sarbanes-Oxley appear to have stabilized.
"Companies continue to make great strides toward increased board independence, greater transparency, improved shareholder communications and more director evaluations," said the chairman of the group's Corporate Governance Task Force, Steve Odland, in a statement. Odland is also the chairman and chief executive of Office Depot Inc.
Odland said that for the first time, companies reported that the costs of implementing the Sarbanes-Oxley law and new stock exchange listing standards have stabilized. The portion of companies reporting estimated costs of more than $10 million dropped to 40 percent, compared to 47 percent in 2005. And 94 percent of companies expect their Sarbanes-Oxley compliance costs to either remain the same (42 percent) or decrease (52 percent) in 2006.
Among the survey's findings:
- Nearly six in 10 companies (57 percent) reported an increase in the pay-for-performance element of senior executive compensation in the past year, compared to 49 percent in 2005 and 40 percent in 2004.
- More than nine out of 10 companies (91 percent) have an independent chairman, lead director or presiding director -- up from 83 percent in 2005 and 71 percent in 2004. The percentage of companies with an independent chairman has also continued to increase, to 11 percent in the 2006 survey.
- Nearly half of the companies (45 percent) are planning to perform individual director evaluations in 2006, up sharply from 27 percent in 2004. Meanwhile, 97 percent of companies said that their nominating/governance committee has established qualifications for directors, a 10 percent increase from 2005.
The Securities and Exchange Commission recently proposed a rule that will require public companies to provide a more thorough explanation of executives' compensation packages as part of a company's financial reporting.
