The real upside of Dodd-Frank: we now have the promise of a robust dialogue between investors and boards.

• Author: Ferracone, Robin A.
• Position: COMPENSATION AT WORK

THE NEW Dodd-Frank legislation has been unfolding for the past eight months. With the 2011 proxy season well underway, board members have been preparing for 'say on pay' and 'say on frequency,' and have been looking ahead to the pay and performance disclosures that will be required in 2012.

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As we have watched the power shift from management in the 1990s to boards of directors in the 2000s to investors today, the ultimate question is: Are we having the right conversations with investors to better understand what they want from our executive compensation system?

To better understand how investors think about executive compensation as they cast their say on pay votes, Farient Advisors has started to research investor sentiments, including institutional pension managers, fund managers, private equity firms, and others. Not surprisingly, our research has highlighted the fact that investors do not speak with one voice. However, for the most part, some common themes among them are emerging:

* In general, investors are in agreement that they do not want to be in the boardroom. What they want is for board members to do their jobs by planning and making decisions that are in shareholder's best interests. Then, they want companies to clearly and proactively communicate their plans and decisions. These expectations pertain to executive compensation as well as any other executive matters. The key message here is that investors want regular communications of decisions that they deem to be defensible.

* Investors believe that executive compensation is a "window into the boardroom." In other words, if the executive compensation programs are transparent, reasonable, and sensitive to company performance, then investors feel as though other aspects of corporate governance will have integrity as well. The key takeaway here is that investors expect the executive compensation programs and decisions to have integrity, e.g., the program design is consistent with the business strategy and needs of the company, and the committee actions are consistent with the program design.

* Investors, especially those who are in it for the long run, strongly want executives to rise and fall with the long-term fortunes of the...