The Advisors' Blog

– Liz Dunshee

Following a low say-on-pay vote, you might earnestly try to right the ship with something like this 14-point recovery plan. But however you get there, this Equilar blog says that the way the data shakes out, most companies with a failed vote end up cutting CEO pay via a shift in the pay mix. Specifically, by reducing option awards. Here’s an excerpt:

Breaking down the average pay mix of companies that failed Say on Pay depicts a trend that could be a major player in a failed vote: options. According to the 2018 Equilar CEO Pay Trends report (available for purchase), options made up an average of 11.8% of CEO pay mix in 2017. However, of the companies that failed Say on Pay in 2017, options made up 23.2% of pay mix, almost double the amount. Over time, compensation professionals realize the power of Say on Pay and take appropriate actions.

Diving into the details on a per-company basis allows for a highlight of an example among companies that have failed Say on Pay proposals. Bed, Bath and Beyond (BBBY) is particularly illustrative of the trend in CEO compensation. After its first time failing Say on Pay in 2014, rather than reducing CEO Steven Temares’ pay, BBBY increased the option and stock awards granted to Temares. Perhaps not surprisingly, after this increase in options and stock, BBBY then failed its Say on Pay vote in 2015.

As a result, option award values decreased by 52.4% in 2016 and then were decreased by about $850,000 the following year. Though the company failed Say on Pay in both 2016 and 2017, the total compensation of the chief executive decreased by 20.9% from 2014 to 2017. This shows that the company made a concerted effort to gain approval in the eyes of its shareholders. Additionally, it seems as if companies that fail Say on Pay consecutively make a greater point of altering their CEO pay plans, especially when it comes to options.