The first mandated U.S. say-on-pay proxy season in 2011 had relatively little impact on most U.S. public corporations. Still, the vast majority of companies are considering making changes to their executive pay-setting process for the 2012 proxy season, according to a survey by consultancy Towers Watson.
The survey, conducted in June 2011, was based on responses from executive compensation executives and professionals at 179 U.S. public companies, primarily midsize and large organizations. Overall, 79 percent of respondents said say-on-pay had no or only little to moderate impact on their focus for the 2011 proxy season, and 72 percent plan to devote about the same amount of effort in 2012.
However, 16 percent of respondents received less than 80 percent of shareholder support for their executive compensation programs. Among these companies, 71 percent plan to devote more time and effort in 2012 compared with 2011. Additionally, 41 percent of companies that received at least one proxy advisory firm “against” recommendation plan to spend more effort in the 2012 proxy season.
“Most companies are breathing a sigh of relief now that the proxy season is over,” said Doug Friske, global head of Towers Watson’s executive compensation consulting practice. “The same, however, can’t be said for many companies that received an ‘against’ recommendation from proxy advisory firms or failed to win the support of at least 80 percent of the shareholder votes cast on their say-on-pay resolutions. The survey findings, along with our consulting experience, suggest that these companies are taking shareholder views quite seriously and plan to respond in some way.”
The survey identified several actions that companies took to achieve a positive say-on-pay vote—actions that other companies can consider to enhance support in 2012. In total, 82 percent took at least one action to successfully achieve a positive say-on-pay vote. The most common actions were:
• Reaching out to shareholders directly (56 percent of companies).
• Communicating with proxy advisors (53 percent).
• Modifying severance provisions, change-in-control arrangements and perquisites (44 percent).
• Hiring a proxy solicitor (40 percent).
About one-third (32 percent) indicated they made changes to their pay programs.
Changes Planned for 2012
Despite most companies winning overwhelming shareholder support for their executive pay programs, almost all surveyed companies (91 percent) are planning or considering at least one change in their pay-setting process or preparations for the 2012 proxy season. These include:
• Performing additional analyses on the link between pay and company performance (44 percent of companies).
• Devoting more attention to preparing the Compensation Discussion and Analysis (CD&A) section of their proxy statements (41 percent).
• Changing their core base pay and incentives programs (17 percent).
“We believe companies need to start thinking now in a proactive way about their strategy for next year’s proxy season,” said Todd Manas, a director in Towers Watson’s executive compensation practice in New York. “Even companies that won shareholder approval this year can’t assume they’ll receive a similar outcome next year. Confirming that a strong pay-for-performance linkage exists, reaching out to shareholders and improving their overall communication about how their company pays for performance will be critical, especially as advisory firms use their own measures for how executive pay ties to company performance.”
Other highlights from the Towers Watson survey include:
• Most employers (64 percent) are only moderately concerned about the pending U.S. Securities and Exchange Commission (SEC) implementation of the Dodd-Frank law requirement to show executive pay vs. company performance.
• Only 20 percent of companies had provided additional disclosure information in the CD&A describing the alignment between executive pay and key performance metrics and said they will continue to do so as the Dodd-Frank requirement becomes mandatory.
• Over half (55 percent) of companies view proxy advisors as having an influence on the results of say-on-pay votes.
Stephen Miller, CEBS, is an online editor/manager for SHRM.
Dodd-Frank Act Has Far-Ranging Impact, SHRM Online Legal Issues, March 2011
U.S. Companies Divided on Say-on-Pay Frequency, SHRM Online Compensation Discipline, January 2011
Executive Comp Plans Target Stronger Performance Ties, SHRM Online Compensation Discipline, January 2011
Directors Looking Beyond Dodd-Frank Act to Fix CEO Pay, SHRM Online Compensation Discipline, November 2010
Reporting CEO-Employee Pay Ratios: Navigating the Minefield, SHRM Online Compensation Discipline, November 2010
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