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IR Magazine | Inside Investor Relations, September 28, 2011 article


Inside Investor Relations


Investors and issuers vary on say-on-pay response

28 Sep 2011

ISS survey shows two sides differ on how boards should react to dissent over executive compensation

Investors and companies disagree on how boards should react to say-on-pay dissent, according to the results of ISS’ annual policy survey.

The study, which asks investors and issuers for feedback on governance issues to help ISS in its policy formation process for the coming proxy season, indicates executive compensation will be a flash point once again during next year’s round of annual meetings.

ISS logoSurvey participants were asked at what level opposition to a say-on-pay proposal should trigger an explicit response from the board regarding improvements to pay practices.

Of the US respondents, investors most commonly cited ‘more than 20 percent’ as the level at which a response should be forthcoming (36 percent picked this option).

US corporations, on the other hand, selected ‘more than 50 percent’ as their preference for when the board should issue a response (48 percent picked this option).

Looking at the results on a cumulative basis, however, there is broad agreement around the 30 percent-40 percent band between investors and issuers.

‘[On] a cumulative basis, 72 percent of investor respondents and 52 percent of issuer respondents indicate that an explicit response from the board regarding improvement to pay practices should be made at opposition levels at more than 30 percent and more than 40 percent, respectively,’ states ISS in a report on the survey’s findings.

Pay top concern in US

The survey points to yet more focus on pay at 2012’s annual meetings, following a year in which US companies across the board had to hold advisory votes on executive compensation for the first time.

This prediction is backed up by the survey finding that a majority of both investors and issuers in the US view executive compensation as ‘one of the top three governance topics’ for next year, as was the case in 2010’s survey.

Investor focus does not necessarily translate into widespread action at annual meetings, however. A study by BNY Mellon Shareowner Services of its clients’ meetings from this year finds the introduction of say-on-pay and say-when-on-pay votes – which determine the frequency of say-on-pay votes – was largely a ‘non-event’.

Global focus on board independence

On a global basis, investors view board independence as a key focus for next year’s proxy season, according to other results from ISS’ survey. ‘Across every region, board independence is identified among the three most important governance topics by approximately 40 percent of investor respondents,’ states the report.

This is the eighth year ISS has sought feedback on corporate governance issues in preparation for the coming proxy season. The study, which took place between July 6 and August 26, called on ISS’ institutional clients and corporate issuers to take part in an online survey.

This year, 138 institutions took part in the survey, with 63 percent based in the US and the remainder split between Europe, Canada and Asia-Pacific. A total of 197 issuers also responded to the survey, with 81 percent of them located in the US and the rest from Europe or Canada.

Click here to download a full copy of the results.


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