The Advisors' Blog

Investors seem to be evaluating equity plan proposals with a more critical eye this year, based on early proxy season results. In its latest update on voting outcomes, Semler Brossy notes:

Average vote support for equity proposals thus far in the proxy season (88.4%) is 300 basis points below the average vote support observed at this time last year, driven by two failed equity proposals early this proxy season. By comparison, no more than three proposals failed in a single year over the last five years.

A recent SGP write-up takes a closer look at why this might be happening – and suggests that companies may need to put extra effort into engagement if a plan proposal is currently on the ballot…or expected for next year. Here’s an excerpt:

Across the market, declining share prices over the past year created dilution and share availability issues, causing companies to rethink equity practices and potentially creatively manage equity burn rates (shift to cash? Lower grant sizes? Change mix of awards?). For many companies, creative considerations were not possible – which potentially has put more companies in a precarious situation: needing shares to replenish their equity plan, but bumping into the dilution and plan cost thresholds of proxy advisors and large investors. In the coming months, many companies will need to strategically engage with their shareholders to win support for their equity plans.

WHAT TO WATCH: Although very few equity plans each year fail to receive majority support, there have already been two failures in the first three months of 2023. Given the challenging market conditions of the past year, large grants to executives have been increasingly costly and highly dilutive. Will this be the year that investors push back?

SGP’s memo also touches on other executive pay-related trends that are coming to the fore this proxy season – lower director support due to executive pay concerns, importance of say-on-pay engagements, and whether pay vs. performance disclosures are creating more questions than answers.

– Liz Dunshee