Negative Say-On-Pay: “Blood in the Water” for Activists
Today’s headline is based on an article from The Deal (subscription required), which highlights that negative say-on-pay votes send a signal to activists that shareholders are willing to vote against management. Therefore, the thinking goes, they may be receptive to activist campaigns. Here’s an excerpt:
Chipotle Mexican Grill Inc. (CMG) is one of the highest-profile examples of a big negative vote on pay that drove an activist into the fold.
In 2014, only 23% of shares backed Chipotle’s executive compensation package. The Mexican-themed fast-food chain at the time had co-CEOs, a rare situation that typically is a red flag for investors. By 2016 — when investor sentiment around executive pay was still not great — Bill Ackman’s Pershing Square Capital Management LP swooped in with a campaign and ultimately a settlement to add dissident directors.
Elbaum noted that companies that wait too long to examine the root cause of negative shareholder votes could soon be targeted by activists, who often will try to paint boards as tone deaf to shareholder feedback.
As a recent Semler Brossy memo points out, 33% of the S&P 500 has gotten a “low” say-on-pay result at some point since 2011. The crisis environment might amplify this risk next year, so it’s time to start planning ahead.
-Liz Dunshee, CompensationStandards.com July 16, 2020
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