Failed Say-on-Pay? Simply Paying Less Isn’t the Answer
An Equilar blog summarizes the most common changes that companies make to their pay programs following a failed say-on-pay vote – the key is to emphasize pay for performance, not just to pay executives less. Here’s an excerpt:
Just over half of the companies that failed Say on Pay in 2017 elected to make changes in compensation metrics or weighting. Compensation metric changes in 2018 generally consisted of modifiers or the addition of line-of-sight metrics to long-term incentive plans. iStar, for example, established a metric that would cap funding at the threshold level for the Annual Incentive Plan if total shareholder return is negative.
The second- and third-most prevalent changes embodied a shift toward performance equity and a reduction in overall pay or position. A shift toward performance equity resulted, most frequently, in a pay mix leaning heavily on variable pay, while a reduction in overall pay was marked by the removal of unique or one-time incentives.
Bed Bath & Beyond attracted significant attention in the last year with its Say on Pay results after another year of poor company performance. Following the vote in 2017, which only received 43.9% approval, the company only made one change to its compensation plan—the reduction of overall pay for its former CEO, Steven Temares. In 2018, Bed Bath & Beyond reduced CEO target compensation by 19%, which involved a $2.2 million decrease in the value of equity awards as well as the voluntary waiver of $500,000 of the Temares’ annual base salary.
However, these actions did little to appease shareholders and the 2018 plan garnered even less support, with only 21.4% of votes in favor. Bed Bath & Beyond serves as an example of how simply paying executives less will not suffice—shareholders want to see clear compensation plans that will result in visibly improved company performance.
-Liz Dunshee, CompensationStandards.com January 6, 2020
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