The Advisors' Blog

In early September, ISS released its 2024 United States Proxy Season Review: Compensation. The summary is public, but the full report is available only to subscribers. This alert describes Gibson Dunn’s key observations and takeaways.

It notes that ISS calls this year’s say-on-pay failure rate the lowest “ever observed.”  Average shareholder support for say-on-pay and equity plans improved after decreasing in recent years. But, notably, some other factors — that we’d expect to negatively impact say-on-pay — are also increasing:

– CEO Pay: ISS notes that the record low say-on-pay failure rates combined with the record high S&P CEO median pay level suggest that investors are considering factors beyond pay magnitude in their voting decisions.

– Perks: The ISS report noted that increases in CEO “all other compensation” levels appeared to be primarily driven by larger corporate aircraft perks and security costs.

– Evergreen Provisions & Other Disfavored Plan Provisions: Evergreen provisions in equity plans continued a steady rise and were observed in over 15% of 2024 plans up for approval. Issuers seeking plan approval in 2024 continued to eschew limitations on flexibility to accelerate vesting and set vesting schedules.

The prevalence of evergreen provisions is likely attributable in part to the repeal of Section 162(m) of the Internal Revenue Code in 2017 and an increase in SPAC/de-SPAC transactions since 2021. Favoring the ability to set and adjust vesting schedules is unsurprising as issuers balance the need for flexibility in equity plan administration.

For balanced reporting, I must add that problematic equity plan provisions, like repricings without shareholder approval and liberal change in control vesting, continued to decline overall. But Gibson Dunn attributes the say-on-pay improvements to “continued transparency in compensation program disclosures and increased attention on shareholder engagement efforts.”

– Meredith Ervine