October 26, 2022
Say-on-Pay: Storm’s A Brewin’?
The stock market’s 2022 nosedive is creating rough waters for say-on-pay votes. According to this Willis Towers Watson blog, we are now at record failures for the Russell 3000 – as well as lower overall support levels. Here’s more detail from the blog:
Despite a slow and rather business-as-usual start to the 2022 proxy voting season, the year-to-date outcomes have reached record territory for say-on-pay (SoP) failures. As of September 30, 2022, there were 78 SoP failures for companies in the Russell 3000, seven more than the previous highest number of failures on record since SoP inception (71 total in 2021).
Not only has the overall rate of SoP proposals failing to receive majority support increased to 4%, but the average level of shareholder support has dipped below 90% for the first time in 10 years. The percentage of companies receiving strong support (defined as greater than 90%) has declined (70% of Russell 3000), though moderate support remains the norm (86% received greater than 70% support).
The first half of the year largely reflects pay and performance ending with the 2021 calendar year, and though it seems like a distant memory at this point, 2021 saw strong total shareholder return (TSR) performance. The overall strength in the market played a role in strong performance and compensation results for fiscal 2021; however, the first nine months of 2022 have seen global economic uncertainty and enormous market volatility, yielding sustained and deep TSR losses. For companies with non-calendar fiscal years, the perfect storm of CEO pay increases confronting bear market territory has led us into record SoP failure territory.
The blog points out that proxy advisors and investors are scrutinizing executive pay for CEOs as well as other NEOs – and are also expecting companies to show “responsiveness” to mediocre or low support. The way to do that is to engage with shareholders and disclose those engagement efforts and any resulting actions in the proxy statement. For additional practical guidance, check out our chapters on “Say on Pay Solicitation Strategies” and “Say on Pay Disclosure Strategies” – included in the newly updated edition of Lynn & Borges’s Executive Compensation Disclosure Treatise (which is included online as part of your membership to this site) – as well as our checklist on “Shareholder Engagement for Say-on-Pay.”
– Liz Dunshee