The Advisors' Blog

– Lynn Jokela

We’ve blogged before about how compensation committees are considering whether to use discretion to adjust executive pay in response to fallout from the pandemic.  Many calendar-year companies have been considering possible action, but many have continued gathering information about company performance and ongoing events.  Another factor top of mind is whether shareholders will be supportive of any potential actions taken in response to the pandemic.  For a preview, a recent Weil Gotshal memo looks at pay actions taken in response to the pandemic and how these actions have affected say-on-pay votes at quarter and mid-year FYE companies.

The memo examines proxy statement disclosures, ISS vote recommendations and vote results of 42 Russell 1000 companies that held their shareholder meetings by October 31.  Of those 42 companies, 25 disclosed Covid-19-related changes to their compensation plans.  To help understand how companies explain different pay adjustments, the memo includes disclosure excerpts from companies included in the review.  Here’s an excerpt about the findings:

The review found that 2019 and 2020 say-on-pay vote results for many companies in the sample were close, with a majority even seeing higher shareholder support.  That many companies in the sample were able to achieve shareholder support in 2020 comparable to that of 2019 is a testament to the their use of objective performance metrics, a reasonable alignment of executive pay and company performance, and their inclusion of robust disclosures to “sell the story” behind those decisions – e.g., when discretion was used, giving detailed descriptions of their rationale, with clear and reasonable outcomes. ISS noted that certain actions it would consider problematic during normal times may be viewed as reasonable in the extraordinary circumstances of the pandemic if clear justifications were disclosed and the outcomes were reasonably commensurate with company performance. From the proxy statement disclosures, it seems that several companies in the sample satisfied these criteria, with just over one quarter of the sample receiving lower/slightly lower shareholder support in 2020 compared to 2019, and just one company receiving an “AGAINST” recommendation from ISS with a resulting 54% shareholder support.