The Advisors' Blog

This Equilar blog takes a data-driven approach to understanding how companies respond to a failed say-on-pay vote using disclosure in 2023 proxies by 77 companies in the Russell 3000 with a failed vote the prior year (defined as less than 50% support). Comparing data from 2023 to 2019 showed that companies facing a failed say-on-pay vote in more recent years may have a harder time narrowing in on how to change their compensation programs and disclosures because shareholders may be looking for some fine-tuning of programs as compared to major changes.

In 2023, metrics or weightings adjustments were the most prevalent with 66% of the failing companies adopting this strategy. However, only 45% of the companies underwent different metrics or weightings in 2019. This suggests a heightened focus on refining performance evaluation frameworks and aligning executive compensation with company performance metrics in the recent year. Additionally, shareholders tend to express more concerns regarding transparency in disclosure, where 36% of the companies made corresponding changes in 2023 but only 29% in 2019.

Conversely, there was a notable decrease in the percentage of companies shifting towards performance equity in 2023 compared to 2019. Only 18% of companies made such changes recently compared to a sizeable 47% in 2019. This suggests that many companies already shifted towards a greater prevalence of performance equity in the past and are now fine-tuning the metrics being used. Overall, the data underscores the dynamic nature of corporate responses to Say on Pay challenges, reflecting evolving governance priorities and shareholder expectations over time.

The blog also noted that the average number of changes made in 2023 remained comparable to 2019 at 2.5 changes per company. Note that the data includes companies that did not have successful say-on-pay votes in 2023 — 80.5% of the surveyed companies passed say-on-pay following the program and disclosure changes. For the most part, there was no magic change or number of changes that allowed companies to pass say-on-pay the subsequent year, leading the blog to conclude that “there isn’t a golden rule that can affect shareholders’ votes to ensure a passing vote. However, the data does show that changes, in most circumstances, can lead to positive effects.”

While a shareholder outreach program will be expected by the proxy advisors in any event, this highlights the importance of being open-minded and actively listening in that outreach so that you can identify the changes that are most likely to help you succeed the next year. This fine-tuning can be challenging — shareholders (& proxy advisors) don’t always agree on appropriate metrics (or even equity award types) — and sometimes requires judgment calls, hopefully made with the help of seasoned advisors who understand your shareholder base.

– Meredith Ervine