January 5, 2011
Looking Ahead at 2011 from 2010: Say-on-Pay Predictions (For What They’re Worth)
– Francis Byrd, Laurel Hill Advisory Group
What will the impact of Say on Pay be? I was taken to task by Broc Romanek recently for failure to place the three 2010 failed SOP votes in proper context in comparison with the UK, where SOP has been firmly established and it took a longer time to tally up three failed compensation votes. His thought was that I might have downplayed the potential impact for next year.
With that said, I spent some time thinking about how things might happen. Here are a couple of thoughts:
How many negative ISS recommendations will there be this year that will result in failed SOP votes? In 2009, there were 255 SOP votes, all of which passed with an average vote approaching 88%. In 2010, there were 136 SOP votes and ISS recommended against 28 of them, with 3 failing. In 2011, there will be thousands of SOP votes and my guess is there may be 100 – 150 SOP votes where ISS recommends against and between 10 – 20 votes that may fail.
How many negative ISS recommendations against non-annual vote frequency will result in the imposition of an annual SOP vote? We’ll see an early test in late January at several companies where the board has recommended a triennial SOP vote against a presumed ISS recommendation for an annual SOP frequency vote. It would appear – and remember it is very early in the proxy/annual meeting preparation process – that most issuers will accept an annual frequency. Let’s presume that 15-20 companies choose to go with biennial or triennial against the institutional activists and ISS, as many as one-half to two-thirds of those will go down to defeat (especially if the issuers have failed to identify their shareholder base, compensation concerns or governance challenges).
How many times will ISS split their recommendation against non-annual vote requests and the actual SOP vote? If my total in the previous question is right the answer will be 10. I’ll hedge by stating that they will split their recommendations, on frequency and SOP approval, in at least half of the cases.