– Broc Romanek, CompensationStandards.com

As I head out on vacation, I thought I would leave you with this interesting two-part series of memos from the proxy solicitor, Alliance Advisors, regarding how say-on-pay played out this past proxy season:

– Part 1
– Part 2

– Broc Romanek, CompensationStandards.com

With the odds of Congress taking action to alter Section 953(b) of Dodd-Frank – the section eliciting pay disparity disclosures – looking pretty slim, the battle to influence the SEC ahead of a proposal coming out is heating up. Last week, I blogged about the AFL-CIO’s new white paper on the topic.

Now we have this comment letter from 22 corporate lawyers (which is not yet posted with the other comment letters sent to the SEC). Here’s a description of the comment letter from Cleary Gottlieb:

Although final rulemaking on the Dodd-Frank (Section 953) CEO pay ratio disclosure requirement has now been delayed until the first half of 2012, we thought you would be interested in this SEC comment letter that addresses many of the conceptual deficiencies of the requirement. The comment letter was a collaborative effort by many leading executive compensation lawyers and supports wholesale repeal of the requirement or, failing that, advocates several modifications to ease the burden of the requirement. Those modifications include:

– At least two years of implementation time following adoption of the rule;
– Exclusion of non-US employees from the calculation;
– A safe harbor for using W-2 compensation (or comparable measurement for non-US employees, if they are included in the calculation) in lieu of “total compensation” as defined by the proxy rules for non-NEO employees;
– A “good faith efforts” standard for determining the median amount of pay;
– Flexibility in selecting the date as of which median pay is determined; and
– Authorization to provide an alternative voluntary measure of relative CEO pay, such as for example the ratio of CEO pay to average pay of private non-farm workers as compiled by the Bureau of Labor Statistics, which would promote comparability of disclosure across companies.

– Broc Romanek, CompensationStandards.com

Recently, ISS released its “Preliminary 2011 U.S. Postseason Report,” whose key findings include:

– During the first year of advisory votes on executive compensation under Dodd-Frank, investors overwhelmingly endorsed companies’ pay programs, providing 91.2% support on average.

– Shareholders voted down management “say on pay” proposals at 37 Russell 3000 companies, or just 1.6% of the total that reported vote results. Most of the failed votes apparently were driven by pay-for-performance concerns.

– “Say on pay” votes spurred greater engagement by companies and prompted some firms to make late changes to their pay practices to win support.

– Investors overwhelmingly supported an annual frequency for future pay votes, even though many companies recommended a triennial frequency.

– Among governance proposals, the biggest story this year was the greater support for board declassification. Shareholder resolutions on this topic averaged 73.5% support, up more than 12% from 2010, and won majority support at 22 large-cap firms.

– Shareholder resolutions on environmental and social issues reached a new high of 20.6% average support. Five proposals received a majority of votes cast, a new record.

– The arrival of “say on pay” contributed to a significant decline in opposition to directors. As of June 30, just 43 directors at Russell 3000 firms had failed to win majority support, down from 87 during the same period in 2010. Poor meeting attendance, the failure to put a poison pill to a shareholder vote, and the failure to implement majority-supported investor proposals were among the reasons that contributed to investor dissent.

– Broc Romanek, CompensationStandards.com

As it has done before, the SEC has adjusted its tentative rulemaking calendar to push back some of the expected proposal and adoption dates for the remaining executive compensation and corporate governance items on its agenda. Thanks to Mike Melbinger, who blogged this information yesterday on CompensationStandards.com (see Davis Polk’s blog for more analysis):

On Friday, the SEC modified its schedule for adopting rules relating to the Dodd-Frank Act, including the key provisions applicable to executive compensation, as follows:

August – December 2011 (planned)

– §951: Adopt rules regarding disclosure by institutional investment managers of votes on executive compensation
– §952: Adopt exchange listing standards regarding compensation committee independence and factors affecting compensation adviser independence; adopt disclosure rules regarding compensation consultant conflicts

January – June 2012 (planned)

– §953 and 955: Adopt rules regarding disclosure of pay-for-performance, pay ratios, and hedging by employees and directors
– §954: Adopt rules regarding recovery of executive compensation
– §956: Adopt rules (jointly with others) regarding disclosure of, and prohibitions of certain executive compensation structures and arrangements

July – December 2012 (planned)

– §952: Report to Congress on study and review of the use of compensation consultants and the effects of such use

Dates still to be determined

– §957: Issue rules defining “other significant matters” for purposes of exchange standards regarding broker voting of uninstructed shares

Thus, it seems unlikely that all five of the clawback, pay-for-performance, CEO pay ratio, incentive compensation rules for large financial institutions, and hedging by employees and directors provisions will be effective for next year’s proxy season. However, if they meet this schedule, one or two of the provisions will be effective for proxies filed after January (as with the say on pay rules, published in January 2011). Fortunately, the SEC will propose rules first (and already has for a couple of the provisions), so we should know well in advance which provisions will be final for the 2012 proxy season.

– Broc Romanek, CompensationStandards.com

We continue to post numerous reports about the results of say-on-pay from this past proxy season in our “Say-on-Pay” Practice Area – including this one from Bentham Stradley and Ira Kay of Pay Governance. Also check out this blog from Matt Orsagh of the CFA Institute which describes say-on-pay developments in various countries.