THE WALL STREET JOURNAL.
2013, 12:36 AM ET
Retail Investors for ‘Say-on-Pay’ Votes
little guy is a big shot this proxy season.
reduce the risk of an embarrassing failure in shareholder advisory votes on
executive compensation, more companies are reaching out to individual
investors to coax them to cast their ballots.
While these so-called retail
investors account for more than a third of U.S. stockholdings, they have
remained elusive in corporate elections. Historically, less than a third of
their shares have been voted at annual meetings, and just 29% since
regulators let companies start sending out proxy materials over the Internet
in 2007, according to
Broadridge Financial Solutions Inc.
retail investors do vote, however, they tend to back management.
year, 515 companies, up from 163 in 2011, sent mailings soliciting proxy
votes to their biggest retail investors—typically those with 500 to 1,000
shares, said Chuck Callan, senior vice president of regulatory affairs at
Broadridge, which processes most corporate proxy votes in the U.S.
more than threefold increase, proxy experts say, has been driven largely by
nonbinding “say on pay” votes, which let investors weigh in on a company’s
executive-pay plans. * (See correction below.)
“Say-on-pay and institutional activism have resulted in higher dissident
votes, so companies are eager to tap into the retail sector given their
historical loyalty,” said Stephen Norman, president of advisory firm
SPNorman & Co.
Companies have rarely focused much effort on retail investors, Mr. Norman
said, deeming them more likely to sell their shares if they disagree with
the company’s direction, rather than read long corporate proxy statements.
But companies can’t afford to “be blasé,” he said.
analysis of 2011 say-on-pay votes shows that 91% of the shares voted by
retail shareholders were cast in favor of executive-pay plans, compared with
86% of votes cast by institutional investors, said Mr. Callan. “At a few
companies that failed votes last year, had the retail participation been
higher and at similar rates, those pay plans would have passed,” he said.
about 2% of say-on-pay votes have failed since companies have been required
to hold them as part of the 2010 Dodd-Frank Act. But many companies fear
failing—garnering less than 50% support.
year, influential proxy-advisory firms have recommended that shareholders
vote against pay plans at about 14% of companies, and more than a quarter of
companies got less than 90% shareholder support, according to executive-pay
consulting firm Semler Brossy.
Failing a vote “has dire consequences,” said Manan Shah, an
executive-compensation attorney at Jones Day. “You don’t ever want to repeat
a say-on-pay failure, so you spend the entire next year focusing on that,
rather than the operations of the business.”
Companies also have changed pay practices and stepped up their overtures to
big institutional shareholders in response to such votes, often calling
their top 100 or 200 investors to discuss executive-compensation issues
ahead of annual meetings. Unlike retail investors, institutional investors
like banks and pension funds must cast their votes to fulfill their
fiduciary obligations to clients.
companies feel luring more retail votes could also help dilute the influence
of big proxy-advisory firms like Institutional Shareholder Services and
Glass Lewis & Co., said Scott Winter, managing director at proxy solicitor
Innisfree M&A Inc. Companies generally expect negative recommendations from
proxy advisory firms to sway at least 20% to 40% of their votes; retail
investors often pay less attention to such recommendations.
companies watch proxy votes come in, they can get increasingly anxious and
spend hours, along with their proxy solicitors, phoning investors.
Blair Jones, managing principal at Semler Brossy, said she has seen chief
executives or chairmen of board compensation committees personally call
large retail shareholders or foreign investors who historically haven’t
voted to say, “We really need your vote and need you to participate in
Broadridge offers mobile and digital voting tools to make it easier for
retail investors to cast votes, and industry groups are lobbying regulators
to let those investors vote through the websites of the banks or brokerage
firms that hold their investment accounts.
another push, the New York Stock Exchange and industry groups formally asked
the Securities and Exchange Commission last month to consider new rules that
would make it cheaper and quicker to get the names of big retail
shareholders from brokers.
of these ideas already have met obstacles. In December, Broadridge removed a
“vote with management” button it had placed on digital proxies after the SEC
raised concerns that the button would unfairly disadvantage proposals from
*CORRECTION: Nonbinding “say-on-pay” votes allow shareholders to weigh in at
set intervals on a company’s executive-compensation plans. The article above
originally reported incorrectly that the votes are held annually. While
that’s true at most companies, they can be as infrequent as once every three
years, depending on the shareholders’ wishes.
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