With proxy season nearly upon us, a couple of thoughts may be in order about Say on Pay, one year after
we first blogged about these new guidelines going into effect.
On the positive side, last year nearly all companies had their executive pay plans approved by at least a majority of their shareholders, according to a recent research report from IR Insight in a survey of 181 companies. Moreover, the vast majority of the companies received a “yes” vote from 70 percent or more of their shareholders on their executive pay plans.
With only two companies surveyed receiving a majority of “no” votes, Say on Pay is nevertheless not lessening in importance.
“Egregious pay packages are by and large a thing of the past,” according to Robin Ferracone, a consultant with Farient Advisors, an independent executive compensation firm. Ferracone believes that investors were “forgiving” last year. She said institutional investors are set to grade companies’ pay plans “a lot harder” in 2012, although if companies’ performances and the markets improve, investors may not question executive pay much at all.
Narrowly approved pay plans may not be out of the woods. Modest changes to the investor base could put these companies in jeopardy of receiving enough “no” votes to reject the pay plan. Executive compensation experts advise corporate secretaries and investor relations officers to contact top holders at these companies to learn about investor concerns, and either explain the purpose of the questionable provisions, or modify the plan.
Going forward, the expectation is investors will more closely scrutinize how executive pay is
determined. They want to see companies disclose how they have appropriately aligned performance with pay. Ferracone believes this means more use of objective criteria, benchmarking and third-party diagnostic tools.
Finally, the SEC has delayed until the second half of 2012 the final rules on a number of pay disclosures under the Dodd-Frank Act. Ira Kay, managing director at Pay Governance, a firm that provides independent executive compensation advice to boards, says the “pay versus performance” disclosure rules are difficult to craft, and the SEC may get ideas from companies tackling the issue on their own. We’ll soon see.
— PondelWilkinson, firstname.lastname@example.org