Council of Institutional Investors

Executive Compensation

CII believes that executive compensation should be transparent and tied tightly to corporate performance, create value for the long-term and advance a company’s strategic goals. Executive compensation is the most critical and visible aspect of a company’s corporate governance. Directors' decisions about CEO pay speak volumes about the board’s accountability to shareowners. Too often, the story they tell is a dismaying one: overly generous pay packages for under-performing senior executives. CII corporate governance policies provide best-practice standards for an array of executive compensation approaches and programs.

CII supports an annual advisory shareowner vote on companies' executive compensation practices, otherwise known as Say on Pay.
An advisory vote provides shareowners with a means to communicate their views on how well the board is handling its responsibility to compensate senior management. Boards may use this feedback to refine pay practices as they find appropriate.

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Empirical evidence supports preserving say on pay.
A twelve-year global study statistically shows significant benefits to providing shareholders with a say-on-pay mechanism. For example, the study found that the link between CEO pay and firm performance increased following the adoption of say-on-pay laws, and improvement was concentrated among companies with problematic pay practices and weak governance. The adoption of say on pay also coincided with reduced disparity between compensation paid to the CEO and compensation paid to other top executives, which is associated with higher firm valuation.

Approaches vary. The US approach to say on pay is moderate relative to those in other parts of the world. The following examples illustrate how regimes differ substantially depending on the market.

  • U.S. approach - Strictly advisory At least once every three years, companies must provide a non-binding shareholder vote on executive compensation. Most companies opt to provide an annual vote, following shareholders' guidance from non-binding "say-on-frequency" votes conducted at least once every six years. 
  • Australian approach - Advisory with escalation clause Shareholders vote every year on executive compensation under Australia's “two strikes" rule. If support is below 75 percent for two years in a row, shareholders vote on whether the board should stand for re-election. If this "spill resolution" receives majority support, those directors who were serving on the board when the remuneration policy was adopted must stand for re-election at a special “spill meeting” held within 90 days. 
  • U.K. approach - Two votes: one binding on compensation design, the other advisory on implementation In the U.K., companies must conduct a binding shareholder vote on remuneration policy at least once every three years. (Within that period, any changes made to the policy triggers a required vote.)  If shareholders do not support the binding resolution by a majority of votes cast, the legacy remuneration policy approved by shareholders remains in effect. The U.K model also gives shareholders an annual, non-binding vote on the report explaining how the company implemented and complied with its remuneration policy in the previous year.  
  • French approach - Two votes, both binding  French companies provide a binding shareholder vote on pay policies, similar to the binding vote conducted in the U.K.  France also requires companies to provide a binding vote on the previous year's payouts. 
  • Italian approach - Sector-specific policy Italian financial services companies hold a binding vote, while non-financial companies hold an advisory vote.

CII corporate governance policies on executive compensation
CII 2018 roundtable report: Real Talk on Executive Compensation
 
CII Correspondence
Aug. 8, 2015 CII comment letter to SEC on clawbacks
April 16, 2015 CII letter to SEC on hedging
Aug. 6, 2014 CII letter to SEC on pay for performance provision of Dodd-Frank
July 23, 2014 CII Letter to Subcommittee on Capital Markets re SEC hearing
June 11, 2014 CII letter to the Financial Reporting Council on proposed revisions to the U.K. Corporate Governance Code
March 11, 2014 CII letter to SEC on Draft Strategic Plan
Feb. 24, 2014 CII letter to Industry Canada regarding its Consultation on the Canada Business Corporations Act
Feb. 11, 2014 CII letter to the Office of the Comptroller of the Currency on proposed national banking rules
Nov. 6, 2013 CII letter to SEC on the proposed rule to implement section 953(b) of the Dodd-Frank Act
Attachment: Proposed Rule to Implement Section 953(b) of the Dodd-Frank Act
Aug. 16, 2013 CII letter to SEC regarding pay versus performance
May 9, 2013 CII follow-up letter to the SEC on potential misuse of Rule 10b5-1 trading plans
Jan. 7, 2013 CII letter to NYSE on Simon Property Group stock incentive plan
Dec. 28, 2012 CII letter to SEC on potential misuse of Rule 10b5-1 trading plans for executive sales of company stock
Nov. 1, 2012 CII comment letter to SEC about NYSE's proposed listing standard rules for compensation committees
Letter references CII definition of independent director
Nov. 1, 2012 CII comment letter to SEC about Nasdaq's proposed listing standard rules for compensation committees
Letter references CII definition of independent director
Download CII's Board Accountability List, which includes zombie directors, majority-supported shareowner proposals, and failed say-on-pay votes from 2013-2019

How CII Calculates Votes: CII calculates support by dividing the number of votes "for" by the sum of votes "for" and "against" (or "withold"). CII excludes abstentions. CII's reported percentage of support may differ from official results.