The Advisors' Blog

– Liz Dunshee

Through the end of last month, shareholders approved “annual” say-on-pay votes at 92% of reporting Russell 3000 companies. As noted in this WSJ article, an annual vote can give shareholders an outlet for expressing discontent & protect companies from more drastic action – such as votes against directors. A longer period might be appropriate for some companies – and anecdotally, some shareholders prefer it – but only if solid engagement efforts exist.

Despite the community’s apparent comfort with the status quo, the bill that eventually replaces Dodd-Frank may modify the frequency requirement for say-on-pay votes – to require voting only in years where there is a “material change” to executive pay. Here’s an excerpt from this Dorsey blog:

So, each year the issuer would have to determine if there has been a material change to executive compensation when deciding what proposals are put before shareholders at the annual meeting. Many issuers would likely continue to hold an annual vote to seek feedback from their shareholders even if there was no material change in compensation.

However, given the high profile nature of a negative say-on-pay result, would issuers shy away from the advisory vote in a year of poor company performance (absent an obviously material change to executive compensation)? Will an issuer’s determination not to include the advisory vote bring on another wave of proxy disclosure litigation? Could an issuer determine not to hold a say-on-pay vote for multiple years in a row?

As John has blogged, the Choice Act isn’t likely to survive Senate review, but the Senate is likely to come up with its own replacement bill. And this aspect seems to fall in the category of “if it’s not broke, don’t fix it.” Visit our “Say-on-Frequency” Practice Area to read recent memos that examine the pros & cons of 1, 2, and 3-year voting practices.