May 24, 2022
Special Awards: SOC Has “Near-Zero” Tolerance
Last week was peak “annual meeting” – with 119 meetings on Thursday alone, according to data from ISS Corporate Solutions. Although the overall say-on-pay failure rate has held steady this year, median CEO pay set a record for the 6th year in a row ($14.7 million!), and that has resulted in a few failed advisory votes. This WSJ article recounts abysmal results at two high-profile companies, and mediocre support at others.
At one company that barely eked by, special awards were in the spotlight. SOC Investment Group filed this notice of exempt solicitation to discourage other shareholders from supporting management’s say-on-pay proposal, in which it advocates “near-zero” tolerance for special awards. Here’s an excerpt:
The company granted Named Executive Officers (NEOs), including the CEO, special “one-time” performance equity awards in addition to their ordinary-course equity awards in fiscal 2021, which we view as unnecessary for the following reasons:
1. Executives already have large amounts of vested and outstanding equity that reward them when the company’s shares appreciate.
2. The special award is not necessary because it rewards executives for what should constitute their normal job duties.
3. Special awards may not solve retention challenges and are a chief cause of executive overpay.
As a general principle, we believe that special awards are inappropriate in almost all cases and has become an overused practice in executive compensation, one that we advocate moving toward near-zero tolerance for. Notwithstanding our belief, in this specific case the company does not offer a particularly compelling rationale for the special award—the grant appears to reward for what we feel should be viewed as ordinary-course business decisions and efforts of executives in any large corporation.
The letter goes on to provide more rationale for each of these 3 points. If you are considering a special award, it’s worth reading this before you move forward, so that you’re prepared to justify the decision. As we’ve noted, granting a “special award” is akin to a mortal sin in the eyes of some proxy advisors & investors.
– Liz Dunshee