The Advisors' Blog

– Lynn Jokela

Now that say-on-pay has been on annual meeting ballots for 10 years, Compensation Advisory Partners issued a report summarizing the voting results.  Although support has been fairly consistent for the last 10 years, the report says this year’s say-on-pay voting results may depart from these prior norms.  Here’s an excerpt with findings about the impact of proxy advisor vote recommendations and because of the potential impact, areas where CAP says it’ll be even more important to include strong disclosure:

– Over the last 10 years, ISS has consistently recommended “against” say-on-pay for approximately 12% of companies per year

– Among companies that have failed their say-on-pay vote, the vast majority (96% on average) received an “against” recommendation from ISS

– Not all companies receiving an ISS “against” recommendation failed their say-on-pay vote – in 2020, 20% of such companies did

– In terms of the impact of ISS’s recommendation “against” has on the overall say-on-pay vote, even though most companies don’t fail the vote, the report says the median level of support in these cases was only 67%

For 2021, CAP says pay-for-performance misalignment will be the main driver for ISS “against” recommendations. Say-on-Pay vote results will continue to depend on the magnitude of pay, pay practices and stock price performance. For companies that may have a pay and performance misalignment, we expect reduced shareholder support if a company has not provided sufficient rationale for the following actions:

– Annual and long-term incentive plan adjustments

– Major employee actions (e.g., layoffs)

– Performance that is dramatically below investor expectations

– Low relative financial performance

– Above-target discretionary adjustments to payouts that previously missed threshold performance

– Awarding one-time special cash/equity grants