March 31, 2021
Insight on State Street’s Say-on-Pay Abstentions & “Against” Votes
– Lynn Jokela
On the heels of State Street issuing its 2021 proxy voting & engagement guidelines that Liz blogged about last week, the asset manager also issued its 2020 stewardship report. The report provides a summary of State Street’s 2020 engagement activity and provides insight about factors influencing the asset manager’s votes on compensation proposals. Here are a few highlights:
In 2020, State Street’s vote “against” compensation proposals were mainly due to growing concerns about pay-for-performance misalignment, poor disclosure of pay structures and increasing pay quantum in the prior year.
The rationale leading the asset manager to “abstain” on pay-related proposals was the result of situations where it couldn’t provide unqualified support or where companies had responded to some, but not all, of State Street’s concerns on pay.
Poor structure (43%) was a key factor driving State Street’s voting rationale on pay proposals – the asset manager says in those cases, incentive design is still in need of improvement and there isn’t always a strong link between pay and business strategy.
For annual incentive plans, State Street expressed concerns about the plans becoming overly complex and it encourages companies to simplify bonus plans and to ensure they have clear linkage to strategy.
State Street also encouraged companies to shy away from using TSR as the sole performance metric for performance-based equity awards and instead take an approach that blends relative TSR and long-term operational metrics that align with the company’s strategy.