The Advisors' Blog

– Larry Schumer, Buck Consultants

A few days ago, I attended a session that included Pat McGurn of ISS.As he always does, Pat gave interesting insight into what is happening this proxy season. For example, here are some statistics on say-on-pay results so far in 2012 – and in comparison to 2011:

– Average “Yes” vote on say-on-pay among Russell 3000: 91% v. 90%
– % of companies that got at least 90% “Yes” vote: 73% v. 75%
– % fof failed votes: About 1% v. Less than 2%
– ISS recommendations: 86% in favor v. 88% in favor

So, not really much difference between 2011 and so far in 2012 except smaller percentage of “failures.”

Here’s an interesting fact – almost all companies who failed in 2011 made substantial efforts since then – as we expected – to both reach out to investors and change pay practices. All so far have gotten majority support in 2012 (egs. Beazer Homes, Jacobs Engineering and H-P). Pat also stated that “a lot of companies” who received “no” votes in the 20-40% range last season seem to have not reached out in a meaningful way.

Pat noted 3 big communication themes:

– Disclosure is much improved in 2012
– Direct engagement with investors is being done more, and being done better, when warranted
– Directors saying “No to exec perqs and big severance deals” more so every year

Also, Pat said a lot of people misunderstand ISS’s methodology regarding CEO pay disconnect – the financial screens are just the start, not the end. If a company fails the quantitative tests, then ISS goes thru a qualitative review -so his stats were – about 25% of companies fail the quantitative tests but only 23% of those companies get a “no” recommendation.

Also, ISS is looking more to 3- and 5-year TSR; they use 3-year (and also 1-year – but they are looking less at 1 year) for relative TSR and 5-year for absolute TSR.