In this snapshot review by Willis Towers Watson of U.S. say-on-pay and other compensation-related votes, WTW found that average support for say on pay remained high at 91%. In addition, where ISS identified “high” levels of concern leading to negative recommendations on say on pay, 84% related to pay-for-performance concerns (compared to 75% in 2017).
WTW analyzed the results of annual meeting votes for 740 companies in the Russell 3000 from January 1, 2018 through May 11, 2018 and compared them against results for the full 2017 year for 2338 companies in the Russell 3000. WTW found that the success rate for say on pay has stayed flat at 91%, with a failure rate of 2% so far in 2018, compared to 1% in 2017. According to WTW, ISS gave 10% of the say-on-pay proposals negative vote recommendations, compared to 12% in 2017; however, those recommendations appeared to have had more impact in 2018, with a difference in average support between as ISS favorable versus unfavorable recommendation at 33% in 2018 compared with only 26% in 2017.
As you know, say on pay was initiated under a Dodd-Frank mandate adopted against the backdrop of the 2008 financial crisis, largely in reaction to the public’s railing against the levels of compensation paid to some corporate executives despite poor performance by their companies, especially where those firms were viewed as contributors to the crisis itself. Say on pay was expected to help rein in excessive levels of compensation and, even though the vote was advisory only, ascribe some level of accountability to boards and compensation committees that set executive compensation levels. The result? Not so much. Instead, say-on-pay votes, which, since inception, have hovered around or over the 90% mark, have served largely as confirmations of board decisions regarding executive compensation and not, in most cases, as the kind of rock-throwing exercises that many companies had feared and some governance activists had hoped.
According to WTW, where ISS raised “high” levels of concern leading to negative recommendations on say on pay in 2018, 84% related to pay-for-performance concerns (compared to 75% in 2017). Of the 2018 say-on-pay failures that had high pay-for-performance concerns, 42% had concerns related to “outsized” long-term compensation. Other common categories of high pay-for-performance concerns included the rigor of incentive plan metrics (45%), a substantial compensation increase (34%), discretionary awards (24%), majority of long-term incentives that were not performance-based (24%), payouts notwithstanding failures to meet targets (23%), and goals reduced from prior years (18%).
Of other topics that led ISS to raise high levels of concern, 17% related to contract concerns, 11% related to responsiveness failures (compared to 20% in 2017), 3% related to concerns regarding non-performance-based pay and 2% related to peer groups. In addition, 18% of the companies that received a negative recommendation from ISS in 2018 had high levels of concern in more than one category.
WTW also looked at the results so far for votes on new or amended equity plans among the S&P 1500, comparing 100 companies in 2018 against 342 companies in 2017. Through May 11, 2018, the average level of support was 90%, the same as in 2017. In 2018, ISS issued negative plan vote recommendations for 11% of the proposals, compared to 10% in 2017. The recommendations from ISS had slightly more impact in 2018, with a difference in average support between as ISS favorable versus unfavorable recommendation at 21% in 2018 compared with 19% in 2017.