18 mai 2018

« Willis Towers Watson offers 2018 say-on-pay snapshot »

Cydney Posner | Cooley PubCo

« 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.

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In “Should Say-on-Pay Votes Be Binding?”, two executives from the Institute for Governance of Private and Public Organizations in Canada explore the unintended consequences of say on pay:

  • The post contends, consistent with the study discussed in the SideBar above, that (based on other studies) shareholder votes tend to be based on stock price performance. According to the post, if a company’s “shares do better than those of its peers, almost any compensation package will be approved. This perverse result tends to increase the pressure on management to focus on short-term stock performance, sometimes through decisions that may negatively affect future performance.” [Emphasis added.]
  • Why look to stock price performance? The authors attribute this result in part to the current complexity and sheer length of compensation disclosure, presumably one consequence of disclosure designed for say-on-pay proposals. And given that many investors hold shares in numerous companies, it may be easier for them to base their votes on stock performance rather than try to analyze complex compensation packages as detailed in lengthy proxy statement disclosures. (Of course, maybe they don’t even open their proxy envelopes!)  According to the post, “for the 50 largest (by market cap) companies on the Toronto Stock Exchange in 2015 that were also listed back in 2000, the median number of pages needed to describe their executives’ compensation rose from six in 2000 to 34 in 2015, with some compensation descriptions consuming as many as 66.”
  • Instead of checking stock prices, it’s even easier for investors to rely on the recommendations of proxy advisory firms, such as ISS and Glass Lewis (which also take into account relative stock price performance in formulating their vote recommendations). As a result, the influence of proxy advisory firms has increased substantially. According to the post, 83% of directors very much or somewhat agree that their influence has increased.
  • One consequence of the increase in influence of proxy advisory firms has been a certain similarity in executive compensation packages. The post indicates that, to win the recommendation of these firms, boards, comp committees and consultants find it “wiser and safer to toe the line and put forth pay packages that will pass muster…. The result has been a remarkable standardization of compensation, a sort of ‘copy and paste’ approach across publicly listed companies. Thus, most CEO pay packages are linked to the same metrics, whether the companies operate in manufacturing, retailing, banking, mining, energy, pharmaceuticals, or services. For the companies on the S&P/TSX 60 index, the so-called long term compensation for their CEOs in 2015 was based on total shareholder return (TSR) or the earnings per share (EPS) growth in 85 percent of cases. The proxy advisory firm ISS has been promoting these measures as the best way to connect compensation to performance.” »


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