April 14, 2021
Trillium’s Say-on-Pay Voting Policy Sets a High Bar
– Lynn Jokela
Some may recall that in addition to “traditional” proxy voting guidelines issued annually by ISS, the proxy advisor also issues “specialty” proxy voting guidelines aimed at investors with certain objectives such as investors focused on sustainability or social responsibility. Trillium Asset Management is an example of one investor that follows the ISS Socially Responsible Investment Guidelines, sort of.
Trillium’s 2021 proxy voting guidelines show where it’s aligned with the ISS SRI vote recommendation and then details situations where it varies and say-on-pay is one item where Trillium has a voting guideline that’s more specific than the ISS SRI vote recommendation. Page 16 of Trillium’s voting guidelines has a comparison and it’s worth noting that Trillium’s guidelines say it will vote “against” say-on-pay proposals if any of the following apply:
– CEO pay is excessive compared to its peers
– Equity awards vest in less than five years
– CEO pay is not tied to ESG performance
– The company CEO-worker pay ratio exceeds 50:1. If the company doesn’t report a CEO-worker pay ratio (presumably for companies not subject to SEC disclosure rules), CEO pay exceeds 50 times the median household income.
This is a pretty strict say-on-pay voting guideline and it seems fairly apparent that Trillium is focused on pay equity and long-term holdings. With that, an “against” vote from Trillium looks like it could be in the cards for a lot of large companies. This ClearBridge report discusses trends about long-term incentives for large-cap companies and says three-year vesting periods are the most prevalent for time-vested LTI awards and three-year performance periods are the prevailing practice for performance-vested LTIs. Separately, Farient Advisors’ CEO Pay Ratio Tracker shows median CEO pay ratios by sector, and so far in 2021 none of the S&P 500 company sector medians are below 50.