2013 is the third year of experience with universal mandatory Say on Pay and it marks the end of the initial two-year exemption for smaller reporting companies. So, what’s happening?
Publicly traded companies have been able to hold “Say on Pay” votes at annual shareholder meetings since 2011. The Frank Dodd Act requires companies to allow shareholders to approve or disapprove top executives’ pay packages at least every three years. Most companies hold annual votes and while the votes are nonbinding, companies have to report the vote results and later explain their actions.
Semler Brossy, Executive Compensation Consultants, has been tracking Say on Pay votes since they became mandatory in 2011. According to their June, 2013 assessment, “Our analyses indicate that what we are seeing is an increase in the spread of voting results. The number of companies above 90% is greater in 2013 at all size levels, and the number between 50%-90% is smaller. The 4 lowest voting results we have observed have all occurred in 2013. The sense that smaller companies are failing at a higher rate is reinforced by the fact that there have been no very high profile failures yet in 2013, like Citigroup and Oracle in 2012 or HP in 2011.” The fact that the exemption for smaller reporting companies has expired, may also be a factor in these results.
Some companies that lost votes have cut corporate executive pay or even thrown directors out. According to Kenneth P. Kopelman, Partner and Co-Chair of the Corporate Governance practice, Kramer Levin Naftalis & Frankel LLP. , “Companies whose votes failed two years in a row [are] facing the true power that the Say on Pay vote can wield: the real possibility of having some of their directors voted off the board. Certainly, these companies would tell you that Say on Pay has real impact.”
The trend toward greater communication between boards and investors is continuing and bringing results. Large investors are now talking to corporate boards as opposed to the past when the CEO and the executive team provided investors with information about the company. If one of the board’s fundamental purposes is to represent the interests of shareholders, then part of its obligation must be transparency for those shareholders.
As a result, “(Corporate) directors are engaging with investors like they never did before,” said Patrick McGurn, special counsel for Institutional Shareholder Services, a consulting firm that advises pension funds.
Investors are stepping up to the plate and taking responsibility for holding companies accountable. And boards are responding with the information that investors need to know. It hasn’t been an easy process, but the 2013 results for Say on Pay point to positive progress.
June 2013Semler Brossy in-depth Say on Pay assessment: http://www.semlerbrossy.com/wp-content/uploads/2013/06/SBCG-2013-Say-on-Pay-Report-2013-06-05.pdf
Related Blogs: 2012 Proxy Season Overview https://www.afpi.com/Proxy_Season
What’s Up With Director Pay? https://www.afpi.com/Director_Pay