Report Reveals Potential Say on Pay Failures for 2012

(December 1, 2011) — In GMI’s second report on “say on pay,” the firm has identified 42 companies in the S&P 500 at risk of a failed advisory vote in 2012.

The findings come as shareholders increasingly demand greater authority over executive pay following the financial crisis, when many investors expressed public outcry over extravagant pay practices. Investor advocates, pension funds, and shareholder groups have pushed for such a change. 

The report identified a total of 157 companies in the Russell 3000, including 42 in the S&P 500, which failed to attract at least 70% shareholder support for their compensation plans. According to GMI, this is an indication of companies most at risk of a failed advisory vote in 2012. The companies having the lowest majorities in 2011 included Safeway, Pfizer, and Invesco. 

“Winning a nominal majority of support by shareholders should not been seen by corporations as a ringing endorsement of executive pay plans,” a report by the firm stated. “Receiving less than 70% support on executive pay packages is an indication of a level of dissatisfaction with the way compensation is being handled. Active involvement with company shareholders and implementation of policies that improve value to shareholders may reverse the direction of declining pay plan support.”

In July, a survey by Towers Watson revealed that the first-ever say-on-pay proxy season had relatively little immediate impact on most public corporations in the United States. However, the vast majority of companies are either planning or considering making changes to their executive pay-setting process and overall preparations for next year’s proxy season. “Most companies are breathing a sigh of relief now that the proxy season is over,” Doug Friske, global head of Towers Watson’s Executive Compensation consulting practice, said in a July statement. “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% 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.”

Todd Manas, a director in Towers Watson’s Executive Compensation practice in New York, added: “We believe companies need to start thinking now in a proactive way about their strategy for next year’s proxy season. 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.”