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back to index backGLOBALtalk May,  2007


Executive compensation: overseas pressure promotes U.S. pay reform

U.S. CEOs are now coming under fire over compensation from foreign investors, reports Tony Jackson in the Financial Times. Major overseas pension funds like Hermes, ABP and the Association of British Insurers are all pressuring for changes to CEO pay. According to research by the U.S. advisory firm Institutional Shareholder Services, 90 percent of institutional shareholders and 61 percent of directors believe that the current U.S. system overpays executives. A network of domestic investors recently launched shareholder resolutions against 44 U.S. companies, notes the newspaper.

These investors advocate a system forcing companies to disclose pay plans and allowing investors a non-binding vote on remuneration reports. This kind of a system has worked well since its introduction in the U.K. in 2003, claim its supporters. Criticism of executive compensation reflects growing dissatisfaction with U.S. standards of corporate governance. On a more positive note, there are early signs of reform within the system. Home Depot appears to have slashed the pay of its new CEO, Frank Blake, who was reportedly happy to accept lower earnings. Other companies like the pharma giant Pfizer are following suit. U.S. governance may still have a long way to go, but recent corrections to executive compensation are a step in the right direction, concludes the newspaper.

Source:  Egon Zehnder International - GAI


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