April 11, 2023
Say-on-Pay: Things Are Looking Up
Coming off a year of record say-on-pay failures in 2022, companies have focused on disclosing “responsiveness” to investor feedback in proxy statements and engagement conversations. That can be done by disclosing the number or percentage of significant shareholders that the company met with and changes to executive pay programs that were made year-over-year to address previous investor concerns.
We are very early in the season – but these efforts appear to be paying off. According to this new Semler Brossy memo (with data from Proxy Insight), say-on-pay votes are tracking higher this year, and the “failure” rate is tracking lower than last year. Here’s more detail:
– Average Say on Pay support for the Russell 3000 (92.2%) is 170 basis points higher than the average support at this time last year. More companies are receiving greater than 90% support (76%) than at this time last year (71%).
– The failure rate for the Russell 3000 (0.7%) is 140 basis points lower than at this time last year (2.1%). Only one Russell 3000 company has failed so far this year.
– The current S&P 500 average vote result of 88.8% is 160 basis points higher than last year’s average at this time.
– Average Say on Pay support for the S&P 500 (88.8%) is 340 basis points lower than the Russell 3000 average – however, only 34 S&P 500 companies have held a Say on Pay vote thus far in 2023.
Semler Brossy notes that proxy advisors remain influential – the average vote result for Russell 3000 companies that receive an ISS “against” recommendation is 19% lower than at companies where ISS recommended “for” the proposal. So far this year, ISS has been recommending in favor of more say-on-pay proposals than last year.
Speaking of proxy advisors, remember that if you receive less than 70% support (ISS) or 80% support (Glass Lewis), and aren’t sufficiently “responsive,” the proxy advisors may recommend against reelection of compensation committee members or the entire board in subsequent years. The “Say-on-Pay Solicitation Strategies” chapter of Lynn & Borges’ Executive Compensation Disclosure Treatise also explains that you need to be wary of “cautionary” support. That can turn into an “against” vote the following year, especially if there is tepid performance on TSR or other metrics in the proxy advisor’s model. For that reason, you may want to consider disclosing responsiveness even to “cautionary” feedback.
– Liz Dunshee