Outsider Voting Analytics
A Different View of Say on
Pay Voting Results in the S&P 500
on Pay is entering its second year, with much anticipation about what
lessons were learned in 2011. Much has been written about the first year's
Say on Pay voting results, in which the majority of companies received
overwhelming approval for their executive compensation. With the 2012
proxy season fast approaching, Equilar has analyzed last year's voting
results focusing on: "How would Say on Pay results look if insider
shareholders were excluded from the vote?"
In July 2011, Equilar analyzed the first proxy season's voting results in
which an advisory vote on executive compensation became mandatory due to
the Dodd-Frank Act. The analysis examined the votes at 2,252 Russell 3000
companies, as disclosed in 8-K filings made shortly after annual
shareholder meetings. The results indicated that executive compensation
proposals were approved for more than 98% of the companies examined, with
most receiving more than 90% affirmative votes from shareholders.
Equilar re-examined the 2011 proxy season Say on Pay voting results at 420
S&P 500 companies with insider shares removed from the "For" votes, and
compared these adjusted results to the original results. Insiders were
defined as any executive or director of the company. This adjustment puts
the voting results between companies on a more comparable basis, in terms
of understanding how the outsider investors feel about executive pay.
Equilar also analyzed the difference between single stock class companies
and multiple stock class companies with insider votes removed. In general,
large cap company results were not significantly affected by the removal
of corporate insiders' votes. A few notable exceptions did exist,
specifically in companies with an active founder and multiple classes of
Key Findings for 2011
At 401 single class companies, the removal of insider votes caused the
average Say on Pay approval percentage to decline from 88.3% to 87.9%,
while the median fell slightly from 94.4% to 94.2%.
At 19 multiple-class companies, the voting adjustment caused the average
Say on Pay approval percentage to decline from 93.4% to 84.1%, while the
median dropped from 95.8% to 90.7%.
Two companies that had an overall positive vote on Say on Pay dropped
below majority approval after the removal of insider shares, one a
single class company and one a multiple class company.
The largest post-adjustment drop at a single class company was 15.9%,
while at a multiple classes company the largest drop was 45.2%.
This new analysis examined 420 S&P 500 companies, and compared the actual
shareholder vote results to an adjusted set of results where insider votes
were removed. To determine the number of insider votes, Equilar started
with the director and executive group ownership totals as disclosed in the
beneficial ownership table of the proxy statement, and subtracted from
that figure non-voting securities such as options and stock units. The
resulting share count most closely approximates the number of shares
directors and executives could vote at the annual meeting. Equilar assumed
that the director and executive shares would be "For" votes. For the 401
companies with a single class of stock, each share was counted as one
vote. For the 19 companies with multiple classes of stock, Equilar
examined the voting rights of each class of stock and applied the
appropriate multiples to the shares held by insiders. In some cases,
multiple classes could mean one class has one vote per share and another
class does not vote, while in other cases it could mean one class has one
vote per share and another has 10 votes per share.
S&P 500 Voting Results - Single Class of Stock
Equilar analyzed voting results at 401 S&P 500 companies with a single
class of stock that held annual meetings between January 25 and June 27,
2011. Whether using the original or adjusted results, the votes were
strongly in favor of the company's executive pay; more than 75% of
companies passed their Say on Pay votes by more than 90%. Removing insider
shares caused a decline in the average approval percentage, from 88.3% to
87.9%. The following chart shows the distribution of companies with a
single class of stock according to their say-on-pay approval rates.
On an individual basis, only two companies saw a drop in approval
percentages of greater than 10%, while 14 companies saw a decline between
2% and 10%. The companies with the largest declines in this group were
Wynn Resorts, dropping from 79% to 64% approval, and JC Penney, falling
from 72% to 61%. One company, Vornado Realty Trust, went from a passing
percentage of 55% to a failing percentage of 49%.
S&P 500 Voting Results - Multiple Classes of Stock
Equilar performed a separate analysis on companies with multiple classes
of stock, due to those companies' significantly different voting
structure. Companies typically utilize multiple classes of stock to enable
an individual or group to maintain a controlling or strong minority voting
interest in a company, without needing to own an equivalent economic
interest. For example, owning a class of stock with 10 votes per share
could allow an individual with 10% economic ownership to have 60% of the
voting power and therefore control any vote.
Equilar analyzed voting results at 19 S&P 500 companies with multiple
classes of stock that held annual meetings between January 27 and October
21, 2011. In the original July analysis that included insider votes, these
19 companies had a greater percentage of affirmative votes than their
single class counterparts in Say on Pay results, with an average approval
percentage of 93.4% compared to 88.3%, respectively. However, eliminating
insider-voting interests for this group had a much greater effect on the
results, with a drop of 9.3% between the unadjusted average of 93.4% and
the adjusted average of 84.1%. The decline would have been even greater if
the analysis had excluded the handful of companies in this group with
nearly 100% voting power held by insiders, since those companies did not
receive a single vote "Against," and therefore had no decline after
removing insider votes. The following chart shows the distribution of
companies with multiple classes of stock according to their Say on Pay
the analysis, three firms saw a reduction in approval percentages greater
than 30%, one saw a reduction of 10%, and an additional seven saw
reductions between 5% and 10%. The largest declines in this group were:
CBS, falling from 96% to 51% approval; Tyson Foods, dropping from 89% to
52% in favor; and News Corp, losing majority support, changing from
passing at 65% to failing at 33%.
the re-examination results show, for most corporations, insider votes do
not have a significant impact on the results of Say on Pay. However, in
certain cases, particularly with companies that separate economic and
voting power through multiple classes of stock, the opinions of outside
investors through the voting process can be distorted by the voting power
of inside shareholders who have controlling interests in the company.
the S&P 500, the original voting results suggest a greater approval of
executive pay policies among multiple class companies than among single
class companies. Upon removing the assumed influence of executives and
directors, multiple stock class companies actually saw lower approval
rates from outsiders than did those companies with a single class
structure. This suggests that companies with significant insider voting
power are less beholden to outside influence in designing pay policies, as
they are less likely to lose a vote on executive pay.
- 2012 Equilar All Rights Reserved.