The Advisors' Blog

This 16-page Sullivan & Cromwell memo gives a nice overview of voting results for say-on-pay and equity plan proposals through June 30th. The memo also gives tips for pay-related engagements as we head into 2022. Here’s an excerpt:

Companies should ensure that the appropriate personnel at institutional investors are involved in the engagement process. Larger institutional investors generally have both environmental, social, and governance (ESG) experts and investment professionals, all of whom may provide input into the voting process but may have differing views. Institutional ESG expertise is particularly important with respect to compensation programs as companies increasingly consider tying pay to ESG metrics and shareholders expect alignment between compensation and ESG outcomes.

Companies therefore should ensure that the appropriate company representatives are part of engagements and that materials are appropriately tailored. Institutional investors are likely to send representatives with a high degree of expertise and specialization, and generalized presentations may not suffice.

Board representation in discussions, especially on topics such as succession planning or executive compensation, may be appropriate but should be evaluated on a case-by-case basis, taking into account the engagement history, the purpose of the meeting, the experience of the relevant directors with direct shareholder engagement and Regulation FD (among other things), and the preferences of the investor with whom the company is engaging.

The memo also recaps ISS’s approach to say-on-pay recommendations, which is important to understand as the proxy advisor continues to influence voting outcomes:

[A]lthough pay-for-performance is just one factor in the overall compensation assessment, it remains the main determinant of ISS’s recommendation on the say-on-pay vote, as has been the case in recent years. This year, however, ISS has also increased its focus on compensation committee communication and responsiveness, ascribing high concern to twice the number of companies this year compared to 2020. This increased focus by ISS highlighted the importance of engagement by public companies with their shareholders on matters relating to compensation.

Of the 12 companies that received a high concern rating on compensation committee communication and responsiveness, four received a rating of low concern with respect to pay-for-performance (and another three received a low initial quantitative concern rating with respect to pay-for-performance). For five of these 12 companies, compensation committee communication and responsiveness was the only category in which the issuer received a high concern rating.

– Liz Dunshee