May 19, 2021
What’s Driving Lower Say-on-Pay?
– Liz Dunshee
Semler Brossy’s latest say-on-pay recap (from last Thursday, May 13th) reports that the current failure rate is 3.3% for Russell 3000 companies – meaning 22 have failed so far in 2021. That’s down from the prior report – but well above the 1.9% failure rate at this time last year. For the S&P 500, the average vote result is 88.4%. ISS is recommending in favor of far fewer say-on-pay proposals this year.
Based on voting bulletins, it appears that a combination of factors are driving lower voting results:
1. Compensation committees exercising discretion to make payouts, without adequate transparency explaining how & why discretion was used
2. Misalignment between pay & performance
3. Mid-cycle adjustments to performance awards, which resulted in a windfall to executives
4. Inadequate response to prior-year say-on-pay failure
5. Large one-time awards
As You Sow has also been calling attention to increasing pay ratios at some companies. So far, that doesn’t seem to be directly impacting say-on-pay votes.
These votes remain very fact-specific and it’s difficult to draw general conclusions. But there’s at least one broadly applicable outcome of the low results: a lot of companies will face even more scrutiny next year. Comp committee members will be judged on “responsiveness” to investor concerns – while also still needing to keep executives happy enough to retain & incentivize them.