The Advisors' Blog

A recent Semler Brossy article examines data from 30 activist campaigns from 2021 to 2023 with a focus on understanding the relationship between the core activist campaign objective and the company’s compensation programs. The data showed that “70% of campaigns cited executive compensation as an issue, and 43% of these campaigns recommended specific changes to current compensation practices or program design.” Surprisingly, the team wasn’t able to identify advance warning signs to boards through proxy advisor recommendations or prior say-on-pay vote results. However:

[A]ctivist campaigns still considerably impacted vote results in the subsequent year after initiation of a campaign. Controlling for the impact of adverse proxy advisor recommendations, our analysis indicated that votes were 12% lower on average in the year following an activist campaign. With a notable decline in average vote results and an increase in failure rates following campaign initiation, it’s evident that activist concerns can manifest in other areas, even if the overall campaign is not successful.

Considering the weight of these campaigns on future say-on-pay results, the article makes this recommendation to boards:

In the same way that the full board might allocate a meeting every year to address broader shareholder and strategic issues, the compensation committee should dedicate one meeting per year, usually in quarter two or quarter three, to reviewing the pay program.

These meetings should focus on how well the program supports business priorities, alignment of pay and performance, congruence of metrics with externally communicated goals and strategy and assessment of the rigor of the goal-setting process. The committee should also evaluate areas where the program could make the company more susceptible to unwanted attacks by activist shareholders, such as consistently low incentive payouts over time.

– Meredith Ervine