Last year, three companies in the US failed to obtain a majority vote for say-on-pay. That was a surprise to me as I have written about before given that so few United Kingdom companies have experienced failures over their decade of mandatory say-on-pay.
Well, in the very first week of annual shareholder meetings under Dodd-Frank’s mandatory say-on-pay regime, we already have our first failed SOP vote. Late Friday, Jacobs Engineering filed this Form 8-K reporting a 54% “against” vote and a 45% “for” vote (as I hinted in a tweet back then). The company received a negative recommendation from ISS.
It’s not a good sign that so early in the season – out of only a handful of companies having meetings – Monsanto’s say-on-pay vote only received 65% “for” and another company’s vote did not pass. Although it’s still early, this could be a harbinger that SOP results will defy the predictions of those that felt that most say-on-pay votes would easily pass.
In the “Dodd-Frank.com Blog,” Steve Quinlivan notes that Jacobs Engineering’s vote results may be explained by the fact that they filed additional solicitation materials explaining one-time grants they had given to its executives, while the proxy statement “had only a perfunctory overview and the grants were otherwise barely addressed” (additional solicitation materials are often filed after a company receives a negative ISS report and must then actively solicit). Perhaps more disclosure in the proxy statement in the first instance would have helped? Who knows but it wouldn’t have hurt the company. To get up-to-speed on drafting considerations, consider listening to the audio archive of last week’s CompensationStandards.com blockbuster webcast featuring Mark Borges, Dave Lynn, Alan Dye and Ron Mueller (transcript coming later today).
Steve also reports about the difficulty that companies who recommended a triennial frequency in getting support for that recommendation. Of the six companies that have announced voting results so far – only two have received majority or plurality support for a triennial frequency (and each of the two had concentrated holdings).
In his “Proxy Disclosure Blog,” Mark Borges gives us the latest say-when-on-pay stats: with 205 companies filing their proxies, 59% triennial; 6% biennial; 29% annual; and 5% no recommendation.
The Proxy Solicitors Speak on Say-on-Pay
We have posted the transcript for our CompensationStandards.com webcast: “The Proxy Solicitors Speak on Say-on-Pay.”
Poll: How Many Companies Will Receive a “Failed” Say-on-Pay Vote?
Now that say-on-pay is mandatory for US companies – and we’ve already had one failed vote under the mandatory regime – please take a moment to participate in this anonymous poll and express how you read the tea leaves:
I’m sad to report that Pearl Meyer has passed away. One of the true pioneers in the executive compensation field, I was blessed to have worked with Pearl when she spoke at our annual pay conference several times over the years. Her wealth of experience allowed her to offer strong viewpoints and a perspective that few could match. Directorship ran this nice story that covers her long career in detail. We will miss you Pearl.
– Pay-for-performance disclosure (how compensation is related to financial performance; Section 953)
– Pay ratios (ratio of CEO pay to average employee pay; Section 954)
– Clawback policies (clawback of the compensation of current and former officers upon restatement; Section 954)
– Hedging policies (whether company has a policy regarding the ability of directors and employees to hedge; Section 955)
This delay is not surprising given that there are no deadlines for these rules under Dodd-Frank – and given the vast number of required rulemakings that the SEC still has on its plate that do have a deadline (as noted in this WSJ article). Also note that the SEC is working with a more limited budget than was expected (as I blogged about before – and will be blogging about more soon). Looking at the new estimated timeframes for these four proposals, it’s possible that these rules may not be finalized in time to apply to the 2012 proxy season.
Note that these rulemakings are not included in the SEC’s semi-annual regulatory agenda that came out last month (and whose information is good as of September 30th, the end of the SEC’s fiscal year). Two non-Dodd-Frank rulemakings potentially are in the works according to this agenda: consolidation and enhancement of risk disclosures and requiring voluntary filers to comply with the SEC rules when they do voluntarily file.
For those wondering how many attend open Commission meetings in person these days, I hear that yesterday’s meeting drew mostly SEC Staffers plus maybe a dozen lawyers and another dozen reporters. It’s pretty remarkable how webcasting the meetings have killed live attendance – a popular topic like SOP would have drawn hundreds in the old days. Personally, I haven’t attended an open meeting at the SEC since they began webcasting them…
Monsanto Shareholders Back Company’s SOP Despite Negative ISS Recommendation – But Significant Number Vote “Against”
Yesterday was the first annual meeting at which a say-on-pay vote was submitted to shareholders under Dodd-Frank. Right after Monsanto held its meeting, it filed its Item 5.07 8-K on the same day. The most noteworthy aspect of the Monsanto vote is that the company’s SOP passed despite a recommendation by ISS against it. However, the company garnered only about two-thirds of the vote in favor – with a third voting against it. This relatively high level of “against” votes should probably be viewed by the company as a warning sign, as mentioned on our earlier say-on-pay webcasts (a notion likely to be repeated by our experts during today’s webcast).
Also noteworthy is that notwithstanding the board’s recommendation that shareholders vote for “triennial,” shareholders selected “annual” – here is how that voting went: 62% for annual; 36% triennial; 1% biennial, and 0.5% abstentions. Even though this vote in non-binding, the company went ahead and disclosed in its Form 8-K that it would implement an annual SOP vote (as also reflected in this press release). However, the company was mum about the potential ramifications of the significant “against” votes on its SOP – understandably so since it may take the company some time to internally process the results (and engage shareholders to better understand why so many “against” votes were cast)…
Assuming the SEC posts the adopting release later today for its new say-on-pay rules, tune in tomorrow for the CompensationStandards.com webcast – “The Latest Developments: Your Upcoming Proxy Disclosures – What You Need to Do Now!” – to hear Mark Borges of Compensia, Alan Dye of Hogan Lovells and Section16.net, Dave Lynn of CompensationStandards.com and Morrison & Foerster and Ron Mueller of Gibson Dunn discuss all the latest guidance about how to overhaul your upcoming disclosures in response to say-on-pay including analysis of what the adopting release says.
If the adopting release is not posted today, we will push back this program to Tuesday, February 1st so that these experts can provide you their guidance on this important rulemaking. Stay tuned!
In his “Proxy Disclosure Blog,” Mark Borges gives us the latest say-when-on-pay stats: with 153 companies filing their proxies, 54% triennial; 8% biennial; 31% annual; and 7% no recommendation. These are fairly close to the percentages seen earlier – so the relative ratios remain pretty steady so far. But many more companies will be filing over the next month or so and could disrupt current trends…
Many institutional investors will have their first chance to express their views on the frequency of advisory votes on compensation when Monsanto, an S&P 500 company, holds its annual meeting on Jan. 25. Under the Dodd-Frank Act, companies are required to hold “say on pay” votes at their first annual meeting after Jan. 21 and to ask investors to vote on whether to hold future votes on an annual, biennial, or triennial basis. Both the pay vote and the “say when” frequency vote will be non-binding. Frequency votes also will be the ballot next week at the annual meetings of Johnson Controls (Jan. 26), Costco Wholesale (Jan. 26), and Visa (Jan. 27).
These early votes may have a significant influence on companies with later meeting dates that still are deciding which frequency to recommend. Most companies with early meeting dates have recommended triennial votes, but two recent surveys suggest that more large issuers will endorse annual votes as the traditional U.S. spring proxy season gets under way.
Pay vote advocates and corporate lawyers will be watching closely to see whether investors follow the triennial vote recommendations of management at Monsanto, Johnson Controls, Costco, and other firms. Monsanto, which doesn’t have a significant insider share block, should be a good test of institutional views on frequency. The agricultural products company’s five largest institutional holders (which all have less than a 5 percent stake) include: PRIMECAP Management, Marisco Capital Management, Vanguard Group, BlackRock Fund Advisors, and State Street Global Advisors, according to FactSet data. Johnson Controls and Costco also don’t have large insider share blocks. If a plurality of investors defy management and vote for an annual frequency at these companies, it’s likely that other large issuers will take notice. Visa is recommending an annual vote, so presumably most of that company’s investors will support that recommendation.
So far, it appears that many institutions plan to back annual votes. In a Jan. 20 webcast hosted by ISS’ Governance Exchange, representatives from State Street, Vanguard, and the California State Teachers’ Retirement System all said they would support annual votes. (Editor’s Note: ISS has advised its benchmark policy clients to vote for an annual frequency.)
Walden Asset Management, Connecticut’s state pension system, and the American Federation of State, County, and Municipal Employees (AFSCME) are among the activists that are urging investors to support annual votes. These activists argue that compensation is too important of an issue for only biennial or triennial consideration. Given that compensation committees typically make annual decisions on executive salaries, bonuses, and severance, the investors contend that an annual vote is central to proper shareholder oversight. They also assert that annual votes would not be overly burdensome for investors, pointing out that shareholders already vote annually on the election of directors and the ratification of auditors. The activists further point out that annual votes are standard practice in other markets with shareholder votes on pay, including Australia, the United Kingdom, France, the Netherlands, Norway, Spain, and Sweden. However, some investors may be swayed by the arguments of the United Brotherhood of Carpenters and Joiners, which has argued that triennial votes would be more meaningful and less burdensome.
So far, a majority of issuers that have filed early proxy statements are advising their investors to support a triennial advisory vote. As of Jan. 20, 125 companies had filed proxy materials that include a “say when” ballot item. Among those companies, 66 (52.8 percent) had a triennial recommendation, while 40 companies (32 percent) endorsed an annual vote, according to ISS data. Eleven issuers supported a biennial vote, while eight companies gave no recommendation. Apple, TD Ameritrade, Oshkosh, and Beazer Homes USA are among the well-known companies that have endorsed annual votes.
While many companies have focused on pay vote frequency during their engagement efforts before the 2011 proxy season, some institutional investors have expressed frustration that corporate officials are not doing enough to address concerns about their underlying pay practices. These investors see the debate over frequency as distraction away from the more important question of whether a particular company’s pay practices merit investor support.
Last week, the SEC brought a rare enforcement action involving perks when it charged NIC Inc. and four current or former officers with failing to disclose more than $1.18 million in perks paid to the former CEO over a six-year period. Correct me if I’m wrong, but this is the first perks case that the SEC has brought since this Tyson Foods settlement in 2005 (and this General Electric order from the year before that). The company and three of the officers agreed to pay a combined $2.8 million to settle the charges.
The SEC alleges that NIC Inc.’s SEC filings failed to disclose that the company footed the bill for wide-ranging perks enjoyed by the former CEO, his girlfriend, and his family – including vacations, computers, and day-to-day personal living expenses and that NIC’s related party disclosures for 2002 through 2005 also were misleading. Among the alleged undisclosed perks for Fraser outlined in the SEC’s complaints filed in federal court in the District of Kansas:
– More than $4,000 per month to live in a ski lodge in Wyoming.
– Costs for Fraser to commute by private aircraft from his home in Wyoming to his office at NIC’s Kansas headquarters.
– Monthly cash payments for purported rent for a Kansas house owned by an entity Fraser set up and controlled.
– Vacations for Fraser, his girlfriend and his family.
– Fraser’s flight training, hunting, skiing, spa and health club expenses.
– Computers and electronics for Fraser and his family.
– A leased Lexus SUV.
– Other day-to-day living expenses for Fraser such as groceries, liquor, tobacco, nutritional supplements, and clothing.
In his blog about this action, Mike Melbinger notes: “The SEC’s allegations make this seem like an egregious situation. However, this action is still a bit frightening to those of us who are making a variety of tough calls each proxy season on whether to report certain items as perquisites.”
We have winners! The 39% that guessed that the SEC would adopt final say-on-pay rules shortly after January 21st are right! The SEC has calendared an open Commission meeting next Tuesday, January 25th to adopt these rules, as well as propose a new definition of “accredited investor” and propose reporting obligation for investment advisors to private funds.
Assuming the SEC posts its adopting release on the same day as the open Commission meeting, we will cover the new rules during our January 26th webcast: “The Latest Developments: Your Upcoming Proxy Disclosures–What You Need to Do Now!” If not, we will push back this webcast to cover the new rules as soon as the adopting release is out.
Tune in today for the webcast – “The Proxy Solicitors Speak on Say-on-Pay” – to hear Art Crozier of Innisfree M&A, David Drake of Georgeson, Ed Hauder of ExeQuity and Reid Pearson of Alliance Advisors discuss solicitation and engagement strategies to help educate shareholders about a company’s compensation program in light of mandatory say-on-pay.
In Friday’s blog, I conducted a poll regarding your guess as to when the SEC would adopt final say-on-pay rules. The 30% who believed that the SEC would adopt them before or on January 21st (which is the date of annual meetings that Dodd-Frank begins to apply mandatory say-on-pay) are proven wrong because the SEC has now calendared an open Commission meeting for this Thursday – but the two agenda items apply to asset-backed securities and not SOP.
So we shall now see if the 38% who believed the SEC would act before the end of this proxy season are right – or the 28% who believed it would be after the proxy season. Or the 10% who believed they would never be adopted. PS – The math doesn’t add up to 100% because folks were allowed to make more than one selection.
During yesterday’s webcast on TheCorporateCounsel.net that dealt with the non-exec comp aspects of Dodd-Frank for this proxy season (audio archive available), the panel had a spirited debate – pure conjecture, mind you – about when the SEC will adopt final say-on-pay rules. You may recall that Section 951 of Dodd-Frank applies mandatory say-on-pay to all shareholder meetings held on or after January 21st – regardless if the SEC adopts final rules.
Please participate in this anonymous poll regarding your guess as to when the SEC will act on final rules: