Does CEO Pay Inspire Performance? Many Say No

Only 39 percent of big investors think the way U.S. companies reward top executives has helped improve corporate performance, and most believe that top managers have too much influence in setting their own pay, a new study has found.

Many corporate directors are also uneasy with how CEO pay is set, according to the study released Thursday. But, directors, who are charged with determining executive payouts, were more likely than investors to believe companies were on the right track in how they structure executive compensation.

Seventy-one percent of the investors thought executive pay plans were overly influenced by company managements, while 49 percent of directors shared that view, according to the report from consulting firm Watson Wyatt Worldwide.

Sixty-five percent of directors thought executive pay models have helped make company performance better.

"While directors believe the system generally works, institutional investors generally feel the model's flaws run deeper and require more substantial changes," said Ira Kay, global director of compensation consulting at Watson Wyatt.

Executive pay -- always a hot-button issue with investors -- is in the spotlight as many companies prepare to release annual pay figures for their leaders in regulatory filings and get ready to hear from shareholders at annual meetings.

Many companies are facing ballot resolutions calling for shareholders to get an advisory vote on executive pay packages, a proposal that most boards of directors oppose.

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Separately, a U.S. congressional panel is looking at pay and severance packages given to top financial executives whose companies have been hurt by the subprime mortgage lending crisis. The committee has set a March 7 hearing in which the CEO of mortgage lender Countrywide Financial , Angelo Mozilo, and former heads of Citigroup and Merrill Lynch are expected to testify.

In its report, Watson Wyatt said it surveyed 162 directors who serve on the compensation committees at 230 publicly traded companies. Also polled were 72 investment and pension fund managers.

The study found that 63 percent of the directors thought that executive pay structures in corporate America were changing in a positive direction, compared with 36 percent of the investor respondents.

There was one point of agreement: The report found that 75 percent of both the directors and investors thought that companies' executive compensation plans have hurt corporate America's image. Also, 78 percent of investors thought executive pay has created resentment among the rank-and-file workers, compared with 60 percent of directors sharing that view.