August 18, 2020
Company Responses to Low Say-on-Pay Vote Results
– Lynn Jokela
Earlier this year, I blogged about disclosure of investor engagement following a failed or low say-on-pay vote result. With a failed or low say-on-pay vote result, most companies will consider a variety of actions and a recent Compensia memo reviewed low say-on-pay vote results at technology companies to help shed light on actions companies took. Each company will make decisions about changes to compensation design or structure based on its own circumstances, although it’s helpful to know what other companies have done if you find yourself dealing with this issue.
A low say-on-pay vote result is described as a vote that failed to win shareholder support or for ISS, a vote receiving less than 70% support, and for Glass Lewis, less than 80% support. Some of the most common actions companies took (the memo delves further into each category of changes) include:
– Long-term incentive design changes – 92%
– Enhanced CD&A/outreach – 76%
– Performance share design changes – 60%
– Short-term incentive design changes – 44%
Compensia also found what it describes as “more dramatic” actions – 52% of the observed companies made a change to the membership of their Compensation Committee in the two years following an unfavorable result, while 36% of the companies subsequently changed their independent compensation consultant. Although the reasons for such changes usually cannot be directly attributed to the say-on-pay vote, it is possible that, in the course of their review, the Board of Directors determined that a fresh point of view might benefit the oversight of the executive compensation program.
Last, it’s also worth noting that the memo says although the size of a CEO’s pay package is generally a key factor in the analysis of a say-on-pay proposal, Compensia’s research was inconclusive as to whether a failed vote or low support ultimately resulted in a reduction in CEO pay in a subsequent year. The memo suggests when evaluating a failed or low say-on-pay vote result that companies consider the absolute level of CEO pay as a potential issue and whether a reduction is appropriate in light of shareholder concerns.