The Advisors' Blog

We’re continuing to monitor how the proxy voting landscape is changing in light of new technologies and more customized voting policies. This Farient Advisors blog takes a closer look at the question, “How will investors’ use of AI affect say-on-pay outcomes?”

The short answer is: Don’t expect a seismic shift in the near-term. But the blog explains that investor practices are already changing in several ways. Investors are:

– Revisiting historical “checklists” related to year-over-year pay changes, absolute pay levels, and one-time awards

– Translating these checklists into customized policies and actions, influencing voting behavior, engagement preparation, and investor priorities

– Analyzing proxy statements, including extracting key information from the CD&A, reinforcing the importance of how companies frame their disclosures

– Conducting custom peer group benchmarking, enabling comparisons beyond traditional company- or proxy advisor-defined peer groups, with implications for both voting and engagement

The Farient team says that proxy advisors are continuing to play a meaningful role in certain aspects of say-on-pay analysis, even as the state of play evolves. Specifically:

– Investors continue to rely on established pay-for-performance (PFP) alignment models while developing their own frameworks

– Proxy advisors retain advantages in covering non-U.S. markets and smaller companies, where operational complexity remains high

In addition to continuing to focus on shareholder engagement and fundamentally well-aligned and well-disclosed pay programs, the blog says that companies can use AI to their advantage too – but don’t take it too far. Here are a couple of parting thoughts:

– Reevaluate peer group strategy: AI tools will enable greater customization in peer group selection, which may diverge from traditional company or proxy advisor frameworks. Companies and their advisors should proactively test a range of peer scenarios and be prepared to address their rationales for the comparisons.

– Elevate the Compensation Committee narrative: When relevant and appropriate, the Compensation Committee Chair letter can carry more weight for investors than in the past by providing the full context around the Committee’s decision-making process, in addition to any anecdotes they hear during an engagement. An annual or periodic letter can be a powerful tool. Don’t treat this as boilerplate or a check-the-box exercise; insight from the Compensation Committee Chair and its members can help contextualize non-routine pay decisions, particularly around special or one-time awards. While AI can be helpful for typo and grammar checks, investors have tools at their disposal that allow them to check for AI-generated content. The pen should remain firmly in the hand of the Committee Chair.

– Liz Dunshee