Liz has blogged about some of the early trends with this year’s say-on-pay votes. Although a proposal hasn’t technically failed when it receives support from shareholders above 50%, it’s important to remember that proxy advisors set a higher bar. ISS considers shareholder support at 70% or below inadequate and will recommend “against” compensation committee members next year if it doesn’t believe the board has adequately responded to shareholders’ pay concerns or Glass Lewis, it’s shareholder support at 80% or below.
For thoughts on what compensation committees can do to demonstrate responsiveness to a passing, but low say-on-pay vote result, Pete Lupo of Pearl Meyer outlines a few steps for consideration:
– Pull together a team, including the compensation committee chair, head of HR and head of investor relations to begin planning the company’s response
– Communicate to the full board so they understand the need for investor outreach and to get their buy-in
– Develop an investor outreach slide deck and seek feedback
– Meet with institutional holders representing at least 50% of combined votes, press for detailed responses during these meetings so it can be helpful
– Meet with ISS and Glass Lewis
– Keep design features you believe are critical, don’t necessary cave and make all requested changes – the committee and management know more about linking metrics to long-term strategy than shareholders and proxy advisory firms but be prepared to explain why the committee didn’t make certain changes
– Take advantage of easy changes such as updating hedging/pledging policies or stock ownership policies – give yourself time to analyze and evaluate any significant plan design changes
– Polish your CD&A, make every attempt to write with clarity, provide an executive summary that includes ample charts and graphs and include a section discussing shareholder feedback received and changes you made based on the feedback
-Lynn Jokela, CompensationStandards.com May 24, 2021
