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Top executives play a critical role in corporate success—they're responsible for everything from productivity to morale. The loss of executive management may negatively influence shareholder value for an extended period, because it takes, on average, seven to eight months to replace top managers. Two recent studies that Hewitt conducted in Germany shed light on the importance of compensation and executive engagement to company performance and investor decisions.
Executive Compensation Influences Investors
When deciding whether to invest in a particular company, institutional investors indicate that formal corporate attention to compensation is important. Hewitt's survey of the top 35 institutional investors in Germany reveals that 46% of these investors believe the existence of a compensation committee is extremely important, while 53% judge the existence of a compensation policy as equally critical. The independence of the compensation committee is of particular concern to institutional investors, with 73% indicating that the CEO should not serve on the committee and 50% believing that no person with a managerial function should serve in a compensation decision-making capacity.
The survey also reveals the importance of corporate governance and transparency in executives' and directors' compensation. Sixty-two percent say that a company's corporate governance policies affect their decisions. This issue will likely increase in importance in the future, as the EU Commission recently recommended the disclosure of executive salaries by listed companies.
Pay, Work Environment Drive Engagement
The engagement of German executives is very high, at 81%, for companies overall and at 82% for double-digit growth (DDG) organizations, according to a Hewitt survey of 169 top executives in Germany. However, differences emerged between drivers of engagement among DDG and non-DDG companies. Executives at non-DDG companies were motivated more by pay, while top managers at DDG companies were motivated by company values and teamwork.
Other factors influencing engagement include recognition of professional accomplishments, access to necessary resources, attractive opportunities for career advancement, and individual ability to impact the company as a whole.
While long-term affiliation with a company has a positive effect on executive engagement, the study shows, a company's listing on the stock exchange does not influence engagement.
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