David Whissel is Vice President and Director of Corporate Governance at MacKenzie Partners, Inc. This post is based on a MacKenzie Partners publication.
In the fifth full season of the advisory vote on executive compensation (“say-on-pay”), average shareholder support for these proposals remains high—in excess of 91% so far in 2016, according to our research. However, although there have been slightly fewer “failed” votes this year, more than 10% of issuers receive a negative recommendation from at least one of the proxy advisors, and many more spend the early part of the proxy season scrambling to deal with executive compensation issues preemptively to ensure that they do not develop into a negative outcome.
For those companies that believe historical high levels of say-on-pay proposal support makes them less susceptible to shareholder opposition, consider this: More than 25% of the companies with “failed” say-on-pay votes in 2016 received support in excess of 90% the previous year, suggesting that performance issues, substantial one-time awards, and other unique circumstances can strain the patience of investors even if the underlying compensation plan is sound. As institutional investors and proxy advisory firms continue to enhance their scrutiny on executive compensation, it is important for issuers to be prepared for a potential negative outcome and to have a plan in place to respond accordingly.
