AN INCREASING NUMBER OF directorsindicate that CEO pay is”too high in most cases,” accordingto the 10th Annual CorporateBoard Effectiveness Studyconducted by the University ofSouthern California’s MarshallSchool of Business and searchfirm Heidrick & Struggles. Thesponsors claim it is the largestU.S. study of board directors,with responses from 768 directorsat approximately 660 of the2,000 largest publicly tradedcompanies.
The nearly 40 percent of respondentswho agreed that themajority of CEOs are overpaid”is a significant increase overprior years’ study results,” saidEdward E. Lawler, III, directorof USC’s Center for EffectiveOrganizations. Perhaps not surprisingly,”an overwhelmingmajority [81 percent] favor increasingthe link between CEOpay and performance.”
Interestingly, the same largeproportion believe that a significantpower shift is occurring inthe boardroom, with 81 percentof directors reporting that CEOshave “less control over theirboards” than before. And themajority of directors (84 percent)say that boards are spendingmore time on “monitoring activitiesand less on strategy.”
Other highlights:
Directors see very few proposedreforms having a significanteffect on controlling CEOpay. The main exception is mandatoryshareholder approval ofcompensation programs.
Despite the new SEC disclosureregulations and the factthat they expect to be spendingmore time addressing CEOcompensation issues, 64 percentof directors expect to seecontinued increases in CEOcash compensation. Fifty-eightpercent expect an increase instock-based compensation. But85 percent say they expect to seethe linkage between compensationand performance increase.
Seventy-five percent of boardsnow have an independent directorwho serves as lead or presidingdirector—a dramatic increasefrom 49 percent in 2003and 32 percent in 2001.
Fifty-seven percent of directorssay they are more hesitant toserve on other boards. Inside directorsare more hesitant thanoutsiders. And 53 percent limitthe number of boards on whichCEOs can serve, up from 23 percentin 2001.