The Advisors' Blog

I blogged this past spring about “director say-on-pay” – a proposal that was structured as a binding bylaw amendment. Seven or eight companies received no-action relief on this proposal, and the five that went to a vote didn’t get much love:

Notable this year was a new type of proposal to amend company bylaws to require shareholder approval of director compensation. 11 such proposals were filed this year. Five went to a vote, receiving 2% average support.

That’s from Georgeson’s proxy season recap (available for download), which also points out that support was down overall for executive and director severance and compensation proposals – and has significantly dropped since 2022. Georgeson says the decline correlates with fewer “For” recommendations from proxy advisors.

I thought that last tidbit was interesting because in his final update on director say-on-pay, Michael Levin at The Activist Investor (who was the proponent for director say-on-pay) gave a peek behind the curtain at his experience working with the proxy advisors on the proponent side of things.

We did talk with ISS and Glass Lewis, and explained our proposal and rationale. We diligently kept them updated as we submitted proposals and worked through SEC no-action requests.

We requested a copy of their recommendation. ISS sent us one company’s out of five, with a friendly note that they don’t typically provide these to proponents. Glass Lewis provided nothing. Aside from the one ISS report, we don’t know the recommendations, although we assume they advised clients to oppose the proposals at each company. Both ISS and Glass Lewis offered to sell us copies of the reports, though.

ISS and Glass Lewis have an elaborate process for responding to companies. They have procedures for companies to submit data and rebut proposals, and share copies of a company’s report with them in advance of a vote. They have updated recommendations based on company input. Proponents have no such access.

I’ll note that these company accommodations (to the extent they do exist) have come by way of a lot of hard work and negotiations over many years. Here are Michael’s parting thoughts:

We thought shareholders would welcome the opportunity to express views about a BoD beyond empty complaints to a nominating committee or a feckless “vote no” campaign. We thought proxy advisors and the SEC would embrace or at least not object to a corp gov innovation that could prevent other companies from trying the same stunts as the TSLA BoD. Boy, we got that wrong.

Look, shareholders don’t owe us anything, much less an explanation why they voted against the proposal. Yet, we thought we put together something that should matter to investors interested in improving corp gov materially. We thought we interacted with them in an appropriately discrete and civil manner.

We’d like to understand why they “really hate” the concept. We still don’t know whether they have too many proposals to vote on, are happy with the current ways to object to directors, or don’t want to provoke companies by supporting something as forceful as a vote on director pay.

Wait ’till next year, it seems.

– Liz Dunshee