June 1, 2023
Negative Say-on-Pay Recommendations: Vetting Proxy Advisor Data
A week before its annual meeting this year, JPMorgan Chase posted this letter to its website and filed it with the SEC as additional soliciting material. The letter highlights that ISS had favorably changed its voting recommendation for the company’s say-on-pay resolution.
This can happen sometimes if the company agrees to resolve a problematic pay practice. But here, the proxy advisor didn’t make the change because of any commitment by JPM. Instead, the company was somehow able to identify that ISS had used incorrect data for one of the ISS-selected peer companies, which caused a “technical error” in the proxy advisor’s quantitative pay-for-performance screen. ISS agreed to re-run its analysis, and the data change caused JPM to move from “medium” concern to “low” concern. Three days after JPM first publicly communicated about the perceived error, ISS changed its voting recommendation from “against” to “for.” JPM reported that 89% of voting shareholders ended up supporting the say-on-pay resolution.
This is a reminder that everyone makes mistakes – even proxy advisors. What’s difficult for companies is identifying and communicating errors in pay-for-performance models in time to salvage the voting outcome. This blog from Ed Hauder offers verification steps that other companies should consider whenever they are faced with a negative say-on-pay recommendation:
– Review your company’s compensation data used in the report to ensure it is accurate.
– Pull the compensation data for the proxy advisor’s peer group to see if it conforms to the data presented in the report.
– Have your staff or your compensation consultant analyze whether the compensation data used is the latest that should be used according to the proxy advisor policies.
JPM was also proactive in messaging its views about the ISS’s original recommendation prior to ISS agreeing to change it, with its first public letter coming 10 days before the meeting. I can only imagine the effort and resources that went into identifying the error, correcting it, respectfully communicating, and soliciting proxies.
– Liz Dunshee