The Advisors' Blog

– Liz Dunshee

The last 5 years of say-on-pay data show that approval levels have gradually been dropping, according to this Equilar blog. Here’s the intro:

Marking its 10th anniversary this year, Say on Pay has been trumpeted as a critical voice for shareholders to rein in rising, outsized levels of executive compensation. Yet since the provision was enacted in 2011, median CEO pay has increased nearly every year while the percentage of companies that receive overwhelming approval on this measure has been consistently high. There’s been a question as to whether this non-binding vote actually works toward its intended purpose, and perhaps that it even has additional unintended consequences.

Looking at the Equilar 500 over the past five years, high Say on Pay approval ratings — over 90% — are widely common. However, starting in 2016, five years into the provision’s lifespan, the “rubber stamp” started to weaken, and “yes” votes in the 90%-94% approval range started to become much more common than those above 95%. While nearly half (48.4%) of all companies in the Equilar 500 received approval in the highest range in 2016, just 29.1% did in 2020. Meanwhile, the percentage of companies receiving approval in the 90%-94% range increased more than 15 percentage points in that time frame.

While most of the shift has been to the 90%-94% range, approximately three in 10 companies received lower than 90% approval, up from about 25% in 2016.

That seems to align with this King & Spalding blog (and the underlying Proxy Insight data), which says that as of about a month ago, ISS had recommended in favor of just 73% of say-on-pay resolutions, compared to 89% last year. Even two years ago, data was starting to show that nearly half of companies had received low say-on-pay support at some point since the advisory vote was enacted. I don’t know that companies or investors ever felt like say-on-pay was a “rubber stamp,” but the stats seem to show there’s more scrutiny as of late, as pay-for-performance and other expectations have evolved.

“Glass half-full” types can take heart that many of those companies were able to bounce back afterwards, and that low votes could have been caused by one-off circumstances. But lawyers & comp consultants are paid to spot risks, and a number of people are worried that what we’re seeing so far in 2021 could be a sign of things to come. Another big company reported a say-on-pay failure yesterday…