2012, 11:10 AM ET
Having Big Effect on Say-on-Pay Results
outreach is playing a significant role in companies improving say-on-pay
results, according to an analysis of the early proxy season this year by law
firm Skadden, Arps, Slate, Meagher & Flom.
passed say-on-pay with low shareholder support last year are seeing higher
margins in the current season, and investor outreach, not a change in pay
policies, may be the reason why.
the only thing that moved the needle at all is personal outreach to
shareholders,” said Regina Olshan, a partner in the executive compensation
group at Skadden in New York.
In its review,
Skadden found that the mix of companies that received less than 70% of
shareholder support was changing, as several companies have increased their
votes significantly this year.
Monsanto increased its “yes” votes from 65% to 85%, without making any
significant changes to its compensation practices from 2011. But the company
said in its proxy documents that it reached out to the 50 largest
shareholders who voted “no” on pay in 2011 to help improve their
understanding of the company’s compensation programs.
Of the first
160 companies in the Russell 3000 to report their annual meeting results
this year, shareholders voted down pay plans at only two companies: Actuant
Corp and International Game Technology. Both had received “against”
recommendations from top proxy advisory services firm Institutional
Shareholder Services, which raised concerns about incentive plans to named
executive officers. Actuant was not required to conduct a vote for 2011, and
International Game had passed say-on-pay in 2011.
of the Russell 3000 companies that failed say-on-pay in 2011 have failed
again so far this year. Both Jacobs Engineering and Beazer Homes, which
failed in 2011 and reached out to their investors about the results, made
significant changes to their compensation agreements. Both companies
received high rates of approval this year. Other companies, like SurModics
Inc. and Headwaters Inc., who barely passed-say-on-pay last year increased
their vote percentages to 92% and 77%, respectively, this year after
eliminating executive tax gross-ups.
review showed that the early results are about on pace with full results
from last year. Skadden found that 68% of the early companies have passed
say-on-pay with over 90% support, 23% received support between 70% and 90%,
8% have passed with 50% to 70% support and 1% have failed.
consulting group Semler Brossy, as of June 23, 3011, – at the end of the
proxy season last year – 71% of companies in the Russell 3000 had more than
90% approval, 23% fell into the 70%-90% group and 6% were in the 50%-70%
group, while 2% failed.
in shareholder returns for 2011 may also be contributing to higher
say-on-pay votes for some companies, due to the link between pay and
performance, said Joseph Yaffe, a partner in the executive compensation
group at Skadden in Palo Alto, California.
“When the dust
settles and we’ve got several years of say-on-pay results to analyze and
consider the impact on corporate governance, my inclination is that the
major byproduct is going to be significantly more interaction with
investors,” he said.
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