The Advisors' Blog

With more large companies failing or coming in below 70% support on their say-on-pay vote this year, compensation committee members who are facing reelection will need to demonstrate responsiveness via fall engagements – and resulting actions – all of which will need to be described in 2023 proxy statements. This ISS Corporate Solutions blog emphasizes the importance of those efforts, with these key takeaways:

– Median support for say-on-pay proposals fell to an all-time low in 2022

– A total of 136 companies in the Russell 3000 Index received less than 70 percent support for their say on pay proposals in 2021

– Companies with the highest levels of responsiveness to investor concerns saw the biggest gains in investor support in 2022 over 2021

– Corporates with more moderate levels of responsiveness also saw investor support rise compared with 2021

– In some cases, companies with a high level of engagement still saw say-on-pay support fall in 2022, while others with low responsiveness saw a gain

As the “Say-on-Pay Solicitation Strategies” chapter of Lynn & Borges’ Executive Compensation Disclosure Treatise explains:

ISS and Glass Lewis have the position that boards need to be responsive to say-on-pay votes that receive less than 70% and 80% support, respectively This means that your goal isn’t to just receive a majority vote on your nonbinding say-on-pay—you need to do better than that. If a company receives a low vote and isn’t sufficiently responsive, ISS and Glass Lewis may recommend against reelection of the compensation committee members — or the entire board — the following year. Increasingly, low say-on-pay support can also be a red flag to activists who closely monitor shareholder dissatisfaction at potential targets.

This blog from As You Sow gives examples of companies that have been able to successfully course-correct and regain shareholder support. Here’s an excerpt:

The company with perhaps the best disclosure of the change it made, and the extent of its outreach, was Marathon Petroleum. A chart in the proxy statement lists significant changes made in several governance, annual bonus and long term bonus. The company, which had been a bit of a governance laggard, is moving toward adopting several best practices including annual votes on directors and separating the chair and CEO. Compensation changes included:

· Updated compensation reference group (or peer group) to reflect the fact that the company is smaller after the sale of its Speedway business

· Eliminated discretionary component of annual bonus, increasing the weighting of financial performance and adding an ESG metric with quantitative goals tied to greenhouse gas emissions intensity and diversity, equity & inclusion

· Reduced the types of equity awards granted from five to three and discontinued the use of stock options

· Increased alignment with shareholders by denominating performance share units in shares of MPC common stock (previously denominated in dollars)

The blog goes on to note:

Of course, as can be seen in the votes and in the information above, the component of engagement that matters the most isn’t the percentage of investors called, but the actions that flow from engagement.

Join us next week at our virtual “Proxy Disclosure & 19th Annual Executive Compensation Conferences” – where we’ll be discussing what proxy advisors and investors expect to see when it comes to responsiveness. There is still time to register! Here’s the agenda – 18 essential sessions over the course of three days. Sign up online (with the “Conference” drop-down, and the “PDEC” options), email sales@ccrcorp.com, or call 1-800-737-1271. Bundle your registration with our “1st Annual Practical ESG Conference” and get a discounted rate!

– Liz Dunshee