Most institutional investors believe there should be a stronger link between executive pay and performance at US companies, with 90% believing the current system has overpaid board members and 85% stating that it has damaged the image of corporate America, reported a survey by Watson Wyatt, the human capital consulting firm. Watson Wyatt surveyed 55 institutions, managing a total $800bn in assets, and found 64% of respondents also believe compensation is not properly disclosed.

However, many institutions approved of stock incentives based on performance and 60% said a requirement to have executives hold shares after option exercise or vesting was in the interest of shareholders.

Furthermore, 67% of respondents said they would like to see independent consultants reporting to a company’s compensation committee.

Ira Kay, global director of Watson Wyatt’s compensation practice, said although it was a difficult balance to satisfy shareholders and recruit the best executive talent, companies should increase performance-related pay and cap severance and change of control plans at the industry standard or less. 

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Watson Wyatt

January 2006