Last year, we saw an uptick in Say-on-Pay failures early on, with the overall 2021 failure rate landing at 2.8% (versus 2.3% in 2020). When companies fail a Say-on-Pay vote — or fall below the 70-80% approval threshold the major proxy advisors use for triggering a close look at “responsiveness” — they’ll want to engage with their shareholders and, in the subsequent year, disclose what they’ve done to address concerns that drove the Say-on-Pay failure.
General Electric is one such company, where approximately 58% of the shareholders voted against GE’s Say-on-Pay proposal in 2021. Their response is in the news:
Last week, WSJ reported that, to address shareholder concerns, General Electric’s CEO, Lawrence Culp, would get his potential compensation cut by roughly $10 million in 2022. GE’s Form 8-K disclosed that Culp’s employment agreement was amended to reduce his 2022 annual equity incentive grant from $15 million down to $5 – a 67% annual equity reduction.
Looking at the “Shareholder Engagement on the 2021 Say-on-Pay Vote” section in GE’s proxy statement, GE had a busy engagement year – with 50+ meetings to engage with shareholders representing 53% of their outstanding common stock and 76% of common stock held by institutional investors. The shareholder concerns largely revolved around the 2020 retention grant. To respond, the GE board reduced Culp’s annual equity incentive grant for 2022 and stated that they don’t “intend to enter into a similar modification of the CEO’s employment agreement again in the future.”
We’ll stay tuned to see if GE has done enough to bounce back from its low vote in 2021. In the meantime, we’re likely in for continued scrutiny on high executive pay, especially as the issue of fairness enters into the conversation. Tune into our webcast on Thursday of this week, “The Top Compensation Consultants Speak,” where we’ll discuss early returns from proxy season and what issues companies should be preparing for.
— Emily Sacks-Wilner, CompensationStandards.com, March 21, 2022