2023 Say on Pay & Proxy Results

Todd Sirras is a Managing Director, Justin Beck is a Consultant, and Austin Vanbastelaer is a Senior Consultant at Semler Brossy LLC. This post is based on a Semler Brossy memorandum by Mr. Sirras, Mr. Beck, Mr. Vanbastelaer, Kyle McCarthy, Nathan Grantz, and Anish Tamhaney.

2020-2022 Compensation Actually Paid to Summary Compensation Table Pay Ratios

  • The 2022 median compensation actually paid (CAP) to summary compensation table (SCT) ratio is roughly 1;1 for the PEO and NEO average; the rations were similar in 2020 but higher in 2021
  • The CAP to SCT rations are positively correlated with total shareholder return over the three-year period.

 

2022 PEO Multiples by Sector

  • In 2022, Energy CAP to SCT rations are the highest thus far, while Consumer Discretionary sector ratios are the lowest on average

TSR vs. PEO CAP to SCT Ratio Observations (Note Charts Below Cut-OFF at -3.0X CAP vs. SCT Rations)

  • The scatter plots below show the PEO CAP:SCT ratio vs. the SEC-required indexed TSR calculation
  • 39% of CAP:SCT ratios are greater than 1.0X in 2022, and the greatest clustering of ratios is between 0.0X and 1.0X
  • 75% of CAP:SCT ratios are greater than 1.0X in 2021, and very few companies reported negative ratios following two strong years of stock market performance
  • 43% of CAP:SCT ratios are greater than 1.0X in 2020, and this year represents the highest slope relationship between ratios and TSR

2022 TSR vs. PEO CAP to SCT Ratio

2021 TSR vs. PEO CAP to SCT Ratio

2020 TSR vs. PEO CAP to SCT Ratio

Breakdown of Say on Pay Vote Results

Only one Russell 3000 company (0.7%) has failed Say on Pay thus far in 2023: PriceSmart

Say on Pay Observations

  • The current failure rate (0.7%) is significantly lower than the failure rate at this time last year (2.1%)
  • The percentage of Russell 3000 companies receiving greater than 90% support (76%) is higher than the percentage at this time last year (71%)
  • The current Russell 3000 average vote result of 92.2% is 300 basis points higher than the index’s average vote last year, and the current S&P 500 average vote result of 88.8% is 160 basis points higher than last year’s average
  • The average Russell 3000 vote result thus far in 2023 is 340 basis points higher than the average S&P 500 vote result; however, only 34 S&P 500 companies have held a Say on Pay vote thus far in 2023

Comparison of Russell 3000 and S&P 500

Russell 3000 Say on Pay Vote Results by GICS Sector

ISS Recommendation Rate Observations

  • 5.2% of Russell 3000 companies and 2.9% of S&P 500 companies have received an ISS “Against” recommendation thus far in 2023
  • The ISS “Against” recommendation rate is significantly lower for both the Russell 3000 and S&P 500 thus far in 2023, though it is still early in proxy season
  • The ISS “Against” recommendation rates for both indices converged from 2018 to 2021, but the spread widened during the 2022 proxy season and has the divergence has persisted in early 2023 results

Frequency of ISS “Against” Recommendations

Average Russell 3000 Vote Result After ISS “For” or “Against” Recommendation

The average vote result for Russell 3000 companies that receive an ISS “Against” is 19 percentage points lower than those that receive an ISS “For” thus far in 2023.

Likelihood of a Low Say on Pay Vote

Likely Causes of Say on Pay Votes Under 50% in 2022

  • Shareholders have voted on 8 social proposals and 2 environmental proposals thus far in 2023
  • Median vote support is 8% for social proposals and 4% for environmental proposals
  • One social proposal (13%) and zero environmental proposals (0%) have received greater than 50% support thus far in 2023
  • Median support for social proposals has decreased by 14 percentage points when compared to all of 2022, and 23 percentage points for environmental proposals; as a caveat, it is still early in the proxy season, but we will continue to monitor if the downward trend in median support for E&S proposals in 2022 continues into 2023

Social Proposals Median Vote Result

Environmental Proposals Median Vote Result

Spotlight: Starbucks

A shareholder submitted a proposal requesting that Starbucks commission and oversee an independent assessment of the Company’s adherence to its stated commitment to free association and collective bargaining.

The proposal received 52% vote support

  • The proponent requested that the Company assess management non-interference when employees exercise their right to form or join a union in relation to the Company’s Global Human Rights Statement
  • The proponents asserted that there is a potential business risk due to perceived misalignment between the Company’s Global Human Rights Statement and their actions in light of complaints to the National Labor Relations Board regarding alleged labor rights violations
  • The Board opposed the proposal, highlighting the benefits the Company provides to its employees and that their Global Human Rights Statement reflects standards expressed through U.S. law
  • ISS recommended a vote “For” the proposal and noted that there are ongoing allegations against the company which are highly nuanced, and that the creation of a third-party assessment would enable stakeholders to evaluate risks through a neutral lens

Director Election Observations

  • Average vote support for Director nominees of 94.9% thus far in 2023 is 40 basis points higher than the year-end support observed in 2022
  • Over the past five years, average Director election vote support at companies that received a Say on Pay vote below 50% in the prior year is four percentage points lower than at companies that received above 70% support
  • Average vote support for female Director nominees is 230 basis points higher than average support for male nominees, which is trending similar to previous years at this point in the season

Breakdown of Director Election Results

Average Director Election Results in Year Following Say on Pay (2019-2023)

Average Director Election Results by Gender

  • Average vote support for equity proposals thus far in the proxy season (86.8%) is 430 basis points below the average vote support observed at this time last year (91.1%)
  • United Natural Foods and Compass Minerals International had proposals that received vote support below 50% thus far in 2023
  • Average equity plan proposal vote support at companies that received a Say on Pay vote below 70% in the prior year is 17 percentage points lower than at companies that received above 90% support; that is greater than the trend over the previous three years, owing to the two early vote failures

Breakdown of Equity Plan Proposal Votes

Say on Pay Impact on Equity Plan Proposal Votes

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