"Investors are most inclined to engage collectively on executive pay," according to the 2019 Institutional Investor Survey by corporate governance and shareholder services firm Morrow Sodali. The annual survey engaged 46 global institutional investors managing a combined $33 trillion in assets under management through an online questionnaire and one-on-one meetings with senior corporate governance staff. Key findings included the following:
Executive Pay. The survey found that not only do investors increasingly engage as a collective (such as joint letters signed by multiple investors on a key issue), 67% said that executive pay was the issue on which they were mostly likely to collaborate. Climate change, which was voted the most likely issue for investor collaboration last year, fell to third place in 2019. In terms of key considerations when evaluating pay, the most important was pay for performance (65%) followed by rigor of performance targets (56%) - a significant change from last year, when pay for performance was highlighted by 88% of investors and targets only 46%. Pay quantum was also on the rise, from 20% last year to 30% this year in the survey.
Director Elections. Skills (70%) and independence (67%) were identified as the most important factors in determining support for an individual director, with industry experience a significant distance behind (41%). When asked about diversity, only 35% of investors considered gender to be the most important, with 89% preferring to focus on diversity of skills and 72% on diversity of experience. Interestingly, almost a quarter (24%) of investors said they considered ethnic diversity of low importance.
Sustainability. Unsurprisingly, the focus on ESG metrics continues to grow, with 89% of investors responding they believe it is either somewhat or very important to partly tie long-term executive pay to sustainability measures. The majority (83%) of investors said that human capital management is the most important topic when asking companies for more detailed sustainability disclosure, outpacing even climate change (76%) and cyber-security (68%). However, when asked which topics they actually plan to engage on with companies in 2019, climate change was selected by the majority (85%) with corporate culture (54%) and human capital management (54%) trailing behind.