Compensation: investors troubled by corporate policies.

Major investors often aren't buying--aren't buying the company line, that is. A survey of 88 major institutional investors by executive compensation consultants Pearl Meyer & Partners finds that "money managers are highly skeptical of the rationales behind some key long-time compensation practices."

Echoing the views of many governance critics, the size of chief executive pay packages drew the most fire. Three-quarters of respondents said current compensation for chief executives is too high--and not one thought CEOs are underpaid, the New York-based pay firm said in announcing the findings.

Investors also were dismissive of the widespread use of golden parachutes, or contractual arrangements that provide executives with financial protection in the event of a takeover. Viewed by the majority of fund managers as "an inappropriate personal incentive to management to take financial risks," more than one investor dubbed such payments "a reward for failure."

In line with their own interests, 65 percent rated shareholder return as the first or second most important factor in setting CEO bonus and long-term incentive payments, followed by return on capital at 53 percent. Earnings per share, a frequently used performance yardstick, was ranked last in importance.

But the investors aren't pleased by recent regulations, either, with one respondent calling the Sarbanes-Oxley Act "an outrageous overreaction to some bad apples." Of six key Sarbanes-Oxley provisions, only two were rated worth the cost of compliance by a majority of respondents: real-time disclosure of insider trading and the certification of financial reports by CEO/CFO, at 58 percent and 53 percent, respectively.

Investors strongly approve of mandatory option expensing, with 73 percent saying the cost of option use will be a "significant" factor in their investment decisions. Fifty-eight percent predicted that accounting for option use will result in improved profit-loss statements, which was similar to the proportion of respondents who expressed satisfaction with existing valuation methodologies.

Separately, former SEC Chairman Arthur Levitt told a July compliance panel in Washington that executive compensation remains the biggest challenge in corporate governance. "Greater disclosure is needed, especially for unwarranted pay packages," he said, adding that too often, "executives have the wrong incentives."

RELATED ARTICLE: Investors Sound Off

75% say average CEO pay of $10.5 million at major companies is too high

59% are opposed to golden parachute arrangements

98% say directors should be accountable for certain financial irregularities that occur on their watch

60% rate earnings per share as among the least useful barometers of company and CEO performance

Opinions expressed by selected investors with median assets under management of $36 billion; survey by Pearl Meyer & Partners