Pay Vote Gets Boost from Investment Professional Group’s Survey
results show that 76 percent of responding CFA Institute investment
professionals support non-binding advisory votes on annual proxy statement.
The Corporate Governance of Listed Companies: A Manual for Investors)
CFA Institute Centre Official Positions)
March 30, 2007 –
The CFA Institute Centre for Financial Market
Integrity, the standard-setting and advocacy arm of CFA Institute, today
released preliminary survey results showing strong member support for
requiring public companies and their boards of directors to submit their
annual executive compensation plan to shareowners for an advisory vote.
The results of the survey show:
76 percent of respondents support proposals that call for non-binding
advisory shareowner votes on executive compensation plans as part of the
annual proxy process.
Of this group, 58 percent believe that companies should attempt to adopt
this input into the current year or next year’s compensation plans.
Interestingly, only 32 percent believe that companies should actually treat
the vote as advisory.
Respondents – 68 percent – are opposed to mandating advisory votes through
“Such votes are seen as creating
and ensuring a transparent dialogue on executive compensation,” said Kurt
Schacht, CFA, managing director of the CFA Institute Centre. “Even though
they are advisory, knowing such a vote will be taken sharpens directors’
attention to and explanation of executive compensation practices. Investors
are tired of learning after the fact about ‘golden parachutes’ and
executives whose pay isn’t tied to performance. Our survey respondents
strongly supported the direct and proven mechanism of an advisory
shareholder vote to express their views on the matter.”
Schacht added that more than 60
U.S. companies are scheduled to consider the issue of an advisory vote in
upcoming annual meetings of shareowners. In addition, the U.S. House of
Representatives is expected to vote on the “Shareholder Vote on Executive
Compensation Act” later this week. However, a significant majority of
survey respondents did not support formal legislative intervention on the
The U.S. proposals mirror the
advisory-vote mechanisms already in place in the United Kingdom and
Australia, where shareowners cast annual votes on companies’ executive
compensation plans. Investment professionals in these markets indicate the
vote requirement has enhanced the level of communication between investors
and the boards of directors of these companies, and have created a more
shareholder-accountable compensation environment.
Distributed on March 13, 2007,
the three-question survey had received responses from 2,239 CFA Institute
members as of March 30. The survey will remain open until Monday, April 2.
In 2005, the CFA Institute
Centre released The Corporate Governance
of Listed Companies: A Manual of Investors to raise awareness
among individual investors, the investment profession, and corporations
about the inherent risks of certain corporate governance practices. It
states that “investors should analyze both the amounts paid to key
executives for managing the Company’s affairs, and the manner in which
compensation is provided to determine whether compensation paid to its
executives is commensurate with the executives’ level of responsibilities
and performance, and provides appropriate incentives.” The
Manual also encourages investors
and corporations to examine the following:
Share-based compensation terms;
Share ownership of management;
Centre for Financial Market Integrity
The CFA Institute Centre
develops timely, practical solutions to global capital market issues, while
advancing investors’ interests by promoting the highest standards of ethics
and professionalism within the investment community worldwide.
The CFA Institute Centre builds upon the CFA Institute 40-year history of
standards and advocacy work, especially its
Code of Ethics and
Standards of Professional Conduct
for the investment profession, which were first established in the 1960s.
APR Jessica Galehouse
951-5348 +1 (434)