With the U.S. annual shareholder meeting season in full swing, voting results are accumulating and providing a better picture of the 2014 say-on-pay landscape. Based on voting results reported through May 16, average shareholder support for company pay resolutions has fallen from the loftier levels observed earlier in the year.  (See “Shareholder Engagement: A Key Component of Improved Say-on-Pay Outcomes in 2014,” Executive Pay Matters, March 12, 2014” for our previous say-on-pay update.) The 91% average support for say on pay in 2014 is consistent with the 90% support observed over all of 2013. So far in 2014, 21 companies have failed their say-on-pay votes, up slightly from the 19 companies that had reported failed votes at the same point in 2013.

Five of the 21 companies that failed say on pay in 2014 to date failed multiple times, and several of the others had relatively low shareholder support (i.e., less than 70%) in previous years. Nineteen companies have failed multiple times out of the 159 total companies that have failed their say-on-pay votes since mandatory voting became required in 2011.

So, what’s behind the repeated low levels of support at some companies? We found that, while these companies often engaged with shareholders following an earlier failed vote, those engagement activities and/or compensation program changes often fell short of fully addressing shareholder concerns. What’s more, when we looked at the leadership structure at these companies, we found that influence is often concentrated with the CEO, who was frequently the company founder or occupied both the CEO and board chairman roles with no additional independent board leadership.

As shown in Figure 1, almost 80% of companies with multiple failures disclosed a shareholder engagement effort following a prior vote. At the same time, however, over a third of these companies didn’t disclose any changes to their compensation programs directly in response to the earlier vote. And when changes were made, questions remained as to whether the actions went far enough or the engagement efforts were significant.

For example, proxy advisor Institutional Shareholder Services (ISS) rated 58% of the companies that had previously failed say on pay as having a high level of concern on shareholder engagement in the most recent ISS evaluation. In contrast, just 10% of all companies at which ISS recommended “against” votes for say on pay in 2014 were rated a high concern for shareholder engagement. In nearly two-thirds of the cases involving multiple say-on-pay failures, ISS noted that the companies did not go far enough in resolving pay-for-performance concerns raised during the previous vote.
 
Figure 1: Shareholder engagement prior to most recent say-on-pay failure at companies that failed say on pay multiple times

Towers Watson Media

Implementing compensation program changes may be difficult at these companies due to leadership structures that magnify the CEO’s influence. Among the 19 companies that failed say on pay multiple times, 15 companies (79%) had the same person serving as CEO and chairman of the board at the time of the failed say-on-pay vote, and eight of the 19 companies continue to have the company founder serving as CEO. By comparison, only 60% of all Fortune 500 companies have a combined chairman and CEO. And, while most companies with combined CEO/chairman roles have appointed lead directors to enhance board independence, four of the 19 companies with multiple failures do not have a lead director.

For our most recent say-on-pay update, click on “Download PDF” above or below. We continue to monitor say-on-pay voting outcomes and post our updates on Executive Pay Matters (see “Latest Update” under “SAY-ON-PAY TRENDS”), so check back regularly for updated results.


ABOUT THE AUTHORS

Robert Newbury 

Robert Newbury

Towers Watson Arlington

Josh Steinfeld 

Josh Steinfeld

Towers Watson Chicago

Jim Kroll 

Jim Kroll

Towers Watson New York


Robert Newbury is a director in Towers Watson’s Arlington, Virginia office who leads the firm’s Executive Compensation Resources unit, Josh Steinfeld is a senior executive compensation consultant in Chicago and Jim Kroll is a director in the firm’s New York office who leads Towers Watson’s executive compensation governance advisory practice. Email robert.newbury@towerswatson.com, josh.steinfeld@towerswatson.com, james.kroll@towerswatson.com or executive.pay.matters@towerswatson.com.