Proxy Votes That Challenge Executive Pay Are Few

A study looking at how shareholder votes on manager compensation have fared since Say on Pay was instituted show a very low failure rate.

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A study looking at how shareholder votes on manager compensation have fared since Say on Pay was instituted eight years ago show a very low failure rate.

Say on Pay is a law that “requires public companies subject to the federal proxy rules to provide their shareholders with an advisory vote on executive compensation.” Consulting firm Semler Brossy looked at a breakdown of Say on Pay votes since the law’s passage in 2011. A Say on Pay vote “fails” when shareholders vote against the level of executive compensation.

It was found that only 1.9% of companies in the Russell 3000 index failed Say on Pay in 2019 so far. This failure rate is lower than last year’s 2.1% failure rate, according to the study.

In terms of how the shareholders of companies in the S&P 500 index are voting, the research found that “nearly one-third of the S&P 500 has received vote support below 70% at least once since 2011.” Say on Pay votes under 50% could be the result of how executive pay is related to performance, the possibility of problematic pay practices, how difficult the performance goals of the company are or how the company interacts with shareholders.

Among the Russell 3000 sectors with the lowest vote results are communication services (9% with a below-50% vote), information technology (7% with a below-50% vote) and consumer staples (3% with a below-50% vote).

Regarding how Say on Pay has affected equity proposals, the study found that support has increased since last year’s report, with an 89.5% vote year to date (as of May 23) compared to 89.4% in 2018. However, environmental and social proposals are receiving less support than last year: No environmental proposals and 3.4% of social proposals received more than 50% support year to date. This is down from 11.9% of environmental and 6.5% of social proposals passing in 2018.

Although those numbers have gone down, the report spotlighted one company, Newell Brands Inc. (NWL), where shareholders passed a proposal that the company publish an executive diversity report and address diversifying its team regarding race, ethnicity and gender.

Sources: “SEC Adopts Rules for Say-on-Pay and Golden Parachute Compensation as Required Under Dodd-Frank Act;” U.S. Securities and Exchange Commission, January 25, 2011. “2019 Say on Pay & Proxy Results;” Semler Brossy, May 23, 2019.