Executive Pay Matters—Say-on-Pay 2019 Annual Update

Laura Elmore and Brian Myers are consultants and Henry Mbom is a senior associate at Willis Towers Watson. This post is based on their Willis Towers Watson memorandum. Related research from the Program on Corporate Governance includes Paying for Long-Term Performance by Lucian Bebchuk and Jesse Fried (discussed on the Forum here).

1. Say-on-pay (SoP) voting results are very similar to the prior year results

  • Absolute number of companies failing the SoP vote increased by one from 2018 (56) to 2019 (57), while the overall failure rate (3%) held steady
  • Average support for SoP proposals has remained generally flat at around 90% for the past nine years

2. Forty companies failed the SoP vote for the first time in 2019, representing 70% of total failed votes

Top three issues of concern for first-time failures were:

  • Majority of long-term incentives (LTI) not performance-based
  • Substantial compensation increase from prior year
  • Lack of rigor of incentive plan metrics

3. Compensation committee members continue to be held accountable for shareholder engagement efforts and response to shareholder concerns

21% of compensation committee members at companies that failed the SoP vote also received a negative vote recommendation

  • The difference between a positive and negative vote recommendation for a compensation committee member is 35 percentage points

4. Companies can recover after a failed SoP vote: 75% of companies that failed in 2018 passed in 2019

  • The average year-over-year increase in shareholder support was 34 percentage points for companies with a failed SoP result in 2018
  • Most reported adding or changing performance metric(s), adjusting compensation mix, and/or increasing clarity and transparency in Compensation Discussion and Analysis (CD&A) disclosures

The complete publication, including footnotes, is available here.

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