May 24, 2021
Low Say-on-Pay Vote Result: A Plan to Demonstrate Responsiveness
– Lynn Jokela
Liz has blogged about some of the early trends with this year’s say-on-pay votes. Although a proposal hasn’t technically failed when it receives support from shareholders above 50%, it’s important to remember that proxy advisors set a higher bar. ISS considers shareholder support at 70% or below inadequate and will recommend “against” comp committee members next year if it doesn’t believe the board has adequately responded to shareholders’ pay concerns – for Glass Lewis it’s shareholder support at 80% or below.
For thoughts on what comp committees can do to demonstrate responsiveness to a passing, but low say-on-pay vote result, Pete Lupo of Pearl Meyer outlines a few steps for consideration:
– Pull together a team, including the compensation committee chair, head of HR and head of investor relations to begin planning the company’s response
– Communicate to the full board so they understand the need for investor outreach and to get their buy-in
– Develop an investor outreach slide deck and seek feedback
– Meet with institutional holders representing at least 50% of combined votes, press for detailed responses during these meetings so it can be helpful
– Meet with ISS and Glass Lewis
– Keep design features you believe are critical, don’t necessary cave and make all requested changes – the committee and management know more about linking metrics to long-term strategy than shareholders and proxy advisory firms but be prepared to explain why the committee didn’t make certain changes
– Take advantage of easy changes such as updating hedging/pledging policies or stock ownership policies – give yourself time to analyze and evaluate any significant plan design changes
– Polish your CD&A, make every attempt to write with clarity, provide an executive summary that includes ample charts and graphs and include a section discussing shareholder feedback received and changes you made based on the feedback