Following a review of N-PX filings, a recent Proxy Insight memo provides an overview of 2020 proxy voting disclosures. The memo includes a discussion (see pages 4-5) of say-on-pay voting. It includes a list of the top 10 investors most likely to oppose say-on-pay resolutions – it’s limited to investors with at least $10 billion in assets under management who’ve disclosed votes for at least 1,000 of the Russell 3000.
It’s important to note that, as shown in the memo, most of these investors still support a majority of say-on-pay resolutions. But, these investors vote against say-on-pay resolutions more frequently than other investors and the list serves as a reminder to be mindful of investors’ voting policies. Here’s Proxy Insight’s 2020 list of investors least supportive of say-on-pay:
We’ve blogged before about different reports summarizing Covid-19 related pay actions. As companies take different actions that range from adjusting metrics to shortening or extending performance periods for outstanding incentive awards, a Mercer memo provides a list of factors to help determine when it’s most appropriate to take different actions. The memo includes a tabular summary of factors to help determine when it’s most appropriate to take various actions relating to annual and long-term incentive awards ending in 2020 and for actions relating to incentive awards ending after 2020.
The memo can serve as a helpful guide for compensation committees considering potential actions. In addition to listing factors to help make determinations about potential pay actions, the memo includes a reminder of necessary action steps, including consideration of regulatory implications, potential proxy advisor reactions and considerations relating to shareholder engagement.
As many companies continue to struggle with fallout from the pandemic, questions abound about how companies will deal with 2021 goal setting and whether companies will make adjustments to outstanding performance awards. A recent NACDonline memo from Roger Brossy and Blair Jones of Semler Brossy suggests now may be a time for boards to reflect more generally about executive pay – basically a time to step back and think about a company’s executive compensation philosophy in the new economic context.
In “normal” times, it’s easy for one year to roll right into the next and things never seem to slow down. If there ever was a time to carve out some time to think about the company’s philosophy around executive compensation, the memo makes a good point that the time is right now. Here are three primary compensation considerations the memo provides for boards to help guide their reflection:
– Decide if pay should continue to be based on market results: include consideration about whether the definition of ‘market’ needs to expand, at least for the highest-potential talent
– Assess whether pay-for-performance needs to be redefined: what is the proper balance of stakeholder concerns and awards for leaders? Ideally, boards could focus on both financial and stock market performance and stakeholder priorities by emphasizing a few stakeholder metrics that are strategic and lead to higher value creation.
– Determine the proper balance for retention: Can we continue to rely on the common wisdom that people leave for greater opportunity and not for pay?
We’re continuing to see commentary on pay gap disclosures and the most recent being this press release from Arjuna Capital announcing Adobe has become the fourth Fortune 500 company, and the first tech company, that’s agreed to disclose unadjusted pay gap data. Unadjusted pay gap compares the median earnings of women & minorities in the US to the median pay of men & non-minorities and can be an indicator of these groups’ opportunities for advancement. The press release says Arjuna Capital agreed to withdraw a 2021 shareholder proposal calling for Adobe to provide median race and gender pay gap disclosures after Adobe agreed to provide the gender data now. Arjuna has requested that Adobe disclose racial pay gap data before 2022.
Liz blogged last week about how the amendments to Rule 14a-8 may impact pay gap shareholder proposals. Arjuna Capital’s press release says that in the 2020 proxy season, Arjuna submitted a total of 13 shareholder proposals calling for median race and gender pay equity disclosures. During the 2020 proxy season, this Sullivan & Cromwell report (page 13) shows average shareholder support for pay gap proposals fell from 22% in 2019 to 13% in 2020 (none passed). At least for now though, Arjuna Capital seems to be pressing ahead with pay gap proposals, here’s an excerpt from the press release with comments from Natasha Lamb, managing partner of Arjuna Capital:
The question that remains is which of America’s other bellwether companies will be leaders and which will hold this data close to the vest. The push for median race and gender pay equity is going to be a major issue in the 2021 shareholder season. We need more companies to follow Adobe’s lead, prioritize diversity in a meaningful way, and step forward with an honest accounting of pay equity.
Yesterday, I blogged about the possibility that the SEC’s recent amendments to Rule 14a-8 could eventually deter proponents from submitting “pay gap” proposals. But companies and compensation committees shouldn’t get too comfortable, because shareholders are also using litigation to push for change.
There’s been a wave of shareholder derivative suits launched in the last several months over diversity concerns. While many have focused on board diversity and workforce demographics, some have also taken issue with the absence of connection between diversity goals and executive pay. And now, the latest suit is veering into “pay equity” territory. Earlier this week, a complaint was filed against Pinterest’s board and executives by the Employees’ Retirement System of Rhode Island.
The complaint alleges that the defendants breached their fiduciary duty by “perpetrating or knowingly ignoring the long-standing and systemic culture of discrimination and retaliation.” For the most part, it stems out of allegations made by three former execs in separate lawsuits of unfair compensation arrangements and retaliation for seeking equitable pay leveling – along with resulting employee “walkouts” to demand greater pay transparency and diversity. This D&O Diary blog has more details & analysis. Here’s an excerpt:
When the various #MeToo-related board liability lawsuits were coming in, I was concerned that this type of workplace environment board litigation could take a much more ominous turn if the lawsuits were to move beyond sexual misconduct allegations and expand to include gender pay disparity issues. The reason for my concern was based on a perception that gender pay disparity is a more widespread issue, and that gender pay disparity is an issue that potentially could ensnare many companies. Obviously, part of the basis of this concern is my perception that gender pay disparity is a serious issue. To that extent, if lawsuits like the one filed against the Pinterest board help companies focus on addressing these issues, that is clearly a good thing. But along the way, it could mean that some companies might find themselves facing board litigation arising out of pay equity concerns – as well as litigation brought by those who claim to have received inequitable compensation.
For those of you who might be wondering what the plaintiff might be hoping for from this lawsuit, I think one clue might be provided by the recent Alphabet settlement of the lawsuit involving underlying allegations of sexual misconduct and hostile workplace at Google. That case, readers will recall, settled for the company’s agreement to adopt certain corporate therapeutics, including most notably Alphabet’s agreement to provide funds of $310 million over ten years to address diversity, equity, and inclusion issues at Google. One reason I feel confident in conjecturing that this might be the kind of thing the plaintiff has in mind here is that the plaintiffs’ lawyers who filed the Pinterest complaint were co-counsel in the Alphabet/Google lawsuit.
According to the investors on our recent webcast, “Pay Equity: What Compensation Committees Need to Know,” pay equity is going to continue to be a hot topic. But this Orrick blog points out that proposals to disclose workforce “pay gap” data eventually may be hampered by the SEC’s recent amendments to Rule 14a-8. Here’s an excerpt:
The amendments to Rule 14a-8 may impact future pay gap shareholder proposals in several ways. First, beginning in 2022, activist shareholders will be unable to reintroduce proposals that fail to attain the requisite support at a previous shareholder meeting. Critically, shareholder proposals have received less than 10% of voters’ support at several companies’ annual shareholder meetings, including Alphabet, Facebook, J.P. Morgan, and Wells Fargo. The amended Rule 14a-8(i)(12) may have less impact at companies where such proposals have failed by a narrower margin.
Relatedly, activist shareholders may shift their calculus given the preclusive impact of multiple failed pay gap proposals in successive years. They may, for example, shift their focus to different industries, or to other companies in the financial and technology industries that have not yet received a pay gap shareholder proposal. Smaller activist shareholder groups may be dissuaded from filing pay gap shareholder proposals altogether given the increased ownership thresholds under Rule 14a-8(b).
Finally, given the rule restricting shareholder proposals to one per “each person,” activist shareholders will soon be prohibited from filing multiple proposals with the same company in a single year. What this means for the future of pay gap shareholder proposals is unclear, although some activist shareholders may find such proposals less attractive than other proposals in light of their extremely low success rate to date.
I blogged a couple months ago that Starbucks would be tying executive pay to diversity targets. Around the same time, Medtronic released its 2020 Integrated Performance Report and announced progress on several E&S issues – including pay equity – and said that it would be linking compensation & advancement opportunities to diversity, equity & inclusion goals. See this Willis Towers Watson memo for more data on D&I commitments and a prediction that more companies will link diversity achievement to executive pay in the coming year.
As more companies move in this direction, this Hunton Andrews Kurth blog offers a few points to consider so that the program can both motivate executives and avoid awkward proxy disclosure. Here’s an excerpt:
To that end, consider having the D&I metric designed to act only as a downward pay modifier to a financial performance metric (similar to how absolute shareholder return can downward modify the pay outcome of an otherwise successful relative total shareholder return formula). That way:
– The status quo of financially incentivizing the executives towards the success of the D&I initiative is maintained.
– Positive proxy disclosure results if both the financial target and the D&I target are satisfied.
– Positive enforcement disclosure results if the financial target is satisfied but the D&I target is not satisfied (i.e., this outcome is not good from the perspective of the D&I initiative or from the executive’s compensation expectations, but from a proxy disclosure perspective the CD&A would disclose that failure of the D&I initiative resulted in a downward adjustment to the pay formula).
– Semi-positive disclosure results if the financial target is not satisfied but the D&I target is satisfied (i.e., this outcome is not good for long-term shareholders, but is good from a social policy perspective), though the answer is that the performance-based pay formula resulted in a $0.00 payout.
– But more importantly, negative proxy disclosure can be softened if both the financial target and the D&I target are not satisfied because, depending on design, only the missed financial target needs to be disclosed. To this point, if the sole purpose of the D&I metric was to act as a negative modifier to a financial metric (i.e., the D&I metric can only downward adjust a payout and in no circumstances act to upward adjust a payout), then awkward disclosure of the missed D&I target might be avoided.