The Advisors' Blog

– Liz Dunshee

It was a surprisingly rough year for say-on-pay (especially for small-caps, according to pg. 14 of this Willis Towers Watson memo). And even if you’ve achieved majority approval, you could still run into problems with proxy advisors & shareholders if your approval level was below-average. This Exequity memo covers what ISS & Glass Lewis want to see after a low vote, and also recommends taking these 14 steps to bounce back:

1. Assess the SOP vote itself and try to determine which shareholders did not support the SOP proposal.

2. Assess the ISS and GL proxy reports to see which items caused ISS or GL to recommend against your company’s SOP vote.

3. Convene a team to help guide shareholder engagement efforts and identify shareholders, and applicable contacts, for outreach.

4. Prepare for shareholder meetings/calls to discuss the SOP vote and points raised by proxy advisory firms, as well as the company’s perspective.

5. Determine what changes (if any) could be made to address issues raised by ISS and/or GL (this Willis Towers Watson memo (pg. 18) suggests creating more rigorous metrics, adjusting the pay mix, clarifying the CD&A, etc.)

6. Have a core team engage with shareholders and listen to what drove shareholders to not support the SOP vote and, even among shareholders that supported the SOP vote, any critical comments they raise about the company’s pay programs.

7. Discuss the findings of the shareholder engagement effort with the broader team, discuss possible courses of action, and come up with recommendations.

8. Discuss shareholder engagement efforts with the compensation committee/board of directors, issues raised, and possible courses of action.

9. Decide what action(s) (if any) to take to address issues raised by shareholders and/or ISS and GL.

10. Prepare a mock-up of next year’s proxy disclosure detailing engagement efforts and discussing action(s) taken as a result and the rationale.

11. Review mock-up disclosure and see what comments the team or committee/board have.

12. Enact any changes that were approved and prepare for next year’s proxy.

13. Monitor and test how proxy advisory firms and shareholders may react to the next proxy statement.

14. Prepare next year’s proxy, being sure to include information detailing shareholder engagement efforts and the changes made by the company as a result (even if it was keeping things as they were), along with a compelling rationale for such actions.