June 7, 2011
Say-on-Pay Failures: Differences for Smaller vs. Larger Companies
– Broc Romanek, CompensationStandards.com
Recently, Mike Kesner and I weighed in on a question posed on our “Q&A Forum” (#867) regarding “Why is it that so many of the companies failing to win their say on pay votes are smaller companies, while most of the largest ones are passing muster?”
My answer is up on the “Q&A Forum” – but I repeat Mike’s here for you to consider:
I agree with Broc that it is tough to generalize, but smaller companies probably do not have the resources to track what all the different proxy advisory firms think about their compensation program and what changes they need to make to fall within these firms’ guidelines. Smaller firms probably do not have the resources to do an in-depth analysis of their shareholder base to understand who is aligned with the different proxy advisory firms and what, if any specific policies, their major shareholders have regarding pay policies.
Smaller firms probably do not hire proxy solictors to set up individual calls with the governance people at their major institutional shareholders to determine if there are specific concerns regarding pay, nor do they have the proxy solicitor monitor voting results on a daily basis to make sure they know about a no vote from a major shareholder in a timely fashion and can take action to try and move the vote to the FOR column prior to the annual meeting.
It is also possible that the number of smaller companies getting a no vote appears high, but is in fact proportionate to their percentage of all publically traded firms. The S&P 500 only represents a small percentage of the 10,000-11,000 publically traded firms, and if 2% of companies fail, on average, there will be a lot more smaller companies failing ( 200 or so) than large companies (20 or so).