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Executive Pay and Loyalty

Say on Pay Voting Results

2012.05.3  Shareholder Discontent Rises, and Crosses the Pond. The daily headlines signal unprecedented shareholder activism in response to executive pay disclosures. From the UK: "Shareholders Reject Aviva's Pay Policy" (Wall St. Journal, reporting that this "humiliating rebuke" is "only the fourth time that has happened to a FTSE 100 company"). From Zurick: "UBS investors protest against pay plan" (Financial Times, 5/3), reporting that "The Swiss bank failed to secure the necessary two-thirds majority to issue new shares for employee options, while only 60 per cent of the capital represented at the annual meeting approved plans in a “say on pay”. In an even sharper rebuff, more than 39 per cent opposed the formal approval of the board and top management for 2011, with only 53 per cent backing the 'discharge'." See "Occupy Boardroom" blog at 2012.Apr.25.

Commentary on Say on Pay Voting Results

  • Issuer Response to Unfavorable Results: Remarks by SEC Commissioner Mary Shapiro (posted 11/2/2011):
    • "It is my hope that a “no” vote or even a significant vote against a company’s executive compensation practices will force boards to ask themselves some very tough questions.
      Questions like:
      • Should executive compensation policies be altered in response to the vote?
      • Has the board’s executive compensation philosophy been clearly articulated to shareholders?
      • How should the board engage with shareholders in response to the vote?
      • Who should the board consult with in connection with responding to the vote?
      • Substantively, what should the Board consider changing about its compensation plans?

      And I am heartened to see that companies filing proxy statements following say-on-pay votes are in fact responding to these issues. Compensation does not necessarily have to change in response to a significant negative vote, but a re-examination of executive compensation is a healthy exercise."

  • Council on Institutional Investors (11.15.2011), finding that --- "investors cast advisory votes against executive compensation at the 37 companies for a variety of reasons, but the factors most frequently cited were:
    • A disconnect between pay and performance (92 percent)
    • Poor pay practices (57 percent)
    • Poor disclosure (35 percent)
    • Inappropriately high level of compensation for the company’s size, industry and performance (16 percent)
  • ISS Final Postseason 2011 Results (10.13.2011). Highlights:
    • During 2011, "investors overwhelmingly endorsed companies' pay programs, providing 92.1 percent support on average."
    • "Through Sept. 1, shareholders voted down management "say on pay" proposals at 38 Russell 3000 companies, or just 1.6 percent of the total that reported vote results. The primary driver of these failed votes appears to be pay-for-performance concerns, which were identified at 28 companies. Almost half of the failed-vote firms have reported double-digit negative three-year total shareholder returns. Also contributing to investor dissent were issues like tax gross-ups, discretionary bonuses, inappropriate peer benchmarking, excessive pay, and failure to address significant opposition to compensation committee members in the past."
  • Alliance Advisors (July 2011)  
  • ISS (Preliminary Results) -- notably: "The primary driver of these failed votes appears to be pay-for-performance concerns, which were identified at 27 companies."
  • See Say on Frequency
Survey Data Generally re Vote Outcomes
  • Board Response -- See the ISS proposal from 10/2011 re how boards are expected to respond to say on pay vote outcomes.
  • A 6/1/2011 report by Cogent Compensation Partners states that with respect to 1,873 U.S. public companies that have held say on pay votes in 2011 --
    • over 68% have received a 90% or more favorable vote.
    • over 84% have received an 80% or more favorable vote.
    • only 1.6% have received less than a 50% favorable vote.
    • With respect to ISS recommendations:
      • for 200 companies that received a favorable ISS voting recommendation, the average shareholder support was 92%.
      • for 30 companies that received an unfavorable ISS voting recommendation, the average shareholder support was 64%.
      • over 50 companies that received an unfavorable ISS voting recommendation neverthless received a favorable say on pay shareholder vote.
  • A 5/19/2011 report by Sembler Brossy Consulting states that with respect to 1,043 companies that had filed say on pay results --
    • over 75% have received at least a 90% favorable vote;
    • ISS had recommended an unfavorable vote at 12% of companies that have filed 2011 proxy statements.  
Unfavorable Shareholder Votes (2011 forward)
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