May 4, 2023
Trends Impacting Say-On-Pay in 2023
Liz recently blogged that things were looking up for say-on-pay in 2023 after record failures in 2022. As this Pay Governance viewpoint notes, that is especially welcome news given some added complexities in 2023—namely, pay-versus-performance disclosures and significant decreases in TSR in 2022 for the first time since say-on-pay votes were first mandated.
The viewpoint compares say-on-pay failure rates and TSR performance at the S&P 500 and comes to a surprising conclusion: the increase in the say-on-pay failure rate occurred during a period when annual TSR levels were among the highest recorded since 2011. The article attributes this to:
– Greater scrutiny of pay practices by proxy advisors and institutional investors as we move deeper into the SOP era.
– Heightened attention over the past several years to the quantum of pay provided versus prior years without regard to absolute or relative performance.
With those trends likely to continue, does that mean final 2023 say-on-pay failure rates are likely to be worse than last year? After all, as the article notes, “TSR performance can change much more rapidly than pay can adjust.” The article points to a few factors working in favor of companies and compensation committees:
– S&P 500 TSR looks better with a longer lookback period
– The use of relative TSR by proxy advisors and institutional investors
– S&P 500 TSR is up in the first quarter of 2023
– Pay-versus-performance disclosures may help show the alignment of “compensation actually paid” with TSR (compared to total compensation in the summary compensation table)
– Meredith Ervine