2024 Proxy Season: Preliminary Analysis of Say-on-Pay Voting Trends

Introduction and Note on Data

The data on say-on-pay voting and recommendations derives from ISS publications and SEC disclosure with respect to annual meetings of S&P 500 and Russell 3000 companies through May 20, 2024.  From January 1, 2024 to May 20, 2024, shareholders have voted on 257 and 1,177 say-on-pay proposals, respectively, at S&P 500 and the Russell 3000 companies. We estimate that roughly one-third of H1 2024 say-on-pay votes were still pending as of May 20, 2024. Therefore, the results summarized here reflect our preliminary analysis, and we expect to publish our annual proxy season review—which will summarize say-on-pay voting trends based on complete H1 2024 data—in the coming months.

Key Observations: 

1. Say-on-pay performance improved overall. Across both the S&P 500 and the broader Russell 3000, say-on-pay proposals are passing[1] at a higher rate than in 2023 and are passing with higher support.
2. ISS recommendations were impactful. ISS recommended in favor of a higher percentage of say-on-pay proposals. ISS recommendations appear to have a high correlation with voting outcomes. Every proposal that ISS supported in 2024 passed, while every failed proposal received a negative or do not vote recommendation from ISS. Even if an ISS negative recommendation did not result in a failed vote, they corresponded to significantly lower than average votes.
3. For 2024 failed votes, ISS focused on perceived pay-for-performance issues and lack of rigor/transparency. 2023 failed votes generally were not “sticky”, and none of the companies that had a failed vote in 2024 also had a failed vote in 2023. The key criteria underlying the ISS’s negative recommendations in failing 2024 proposals  include pay-for-performance and compensation rationale issues, such as non-rigorous performance goals and lack of transparency.
4. Failed votes focused on a narrower set of industries. The only S&P 500 companies with  failed votes in 2024 were industrial and technology companies, whereas companies in the healthcare, real estate and financial sectors also received failing votes in 2023.

1. Increased Shareholder Support of Say-on-Pay Proposals

Based on our preliminary 2024 data, 98.8% of say-on-pay proposals have passed in the S&P 500, compared to 97.4% last year.  In the broader Russell 3000, 99.3% of proposals have passed, compared to 98.0% last year.  In both the S&P 500 and the Russell 3000, the percentage of failed votes have decreased by more than 50%, and significantly fewer companies received below 70% of the votes cast.[2]

The following table summarizes say-on-pay voting results for full-year 2023 and for 2024 through May 20.

In general, more proposals appear to be passing with a high percentage of votes cast. Notably, 75.1% of S&P 500 say-on-pay votes passed with 90% or higher support, compared to 70.6% in 2023. The year-over-year improvement is even more pronounced across the broader Russell 3000, with 80.4% of proposals receiving 90% or higher support, compared to 73.1% in 2023.

2. Increased ISS Support Overall, Still Strongly Correlates With Voting Outcome

Increased ISS support may be a key reason for the overall increase in shareholder support for 2024 say-on-pay proposals. ISS supported a higher percentage of say-on-pay proposals in 2024 as compared to 2023.  Among the S&P 500, ISS has recommended in favor of 93.8% of proposals, compared to 90.5% in 2023. This year-over-year trend was more pronounced among the broader Russell 3000, where ISS supported 94.0% of proposals, compared to 87.6% in 2023.

Notably, the percentage of proposals that received a negative ISS recommendation decreased by more than 30% in the S&P 500 and by 50% in the broader Russell 3000.

The following table summarizes ISS recommendations for full-year 2023 and for 2024 through May 20.

Similar to prior years, there was a high level of correlation between ISS recommendations and voting outcomes. For both the S&P 500 and the Russell 3000, all of the voted-on say-on-pay proposals with disclosed outcomes that had an ISS “For” recommendation passed in 2023 and 2024. In contrast, for proposals that received a negative recommendation from ISS, average support decreased significantly. Among the S&P 500, proposals with negative ISS recommendations received on average 30.2% lower support than proposals with favorable ISS recommendations (compared to the 32.8% difference we observed in 2023). Among the broader Russell 3000, proposals with negative ISS recommendations received on average 27.7% lower support than proposals with favorable ISS recommendations (compared to the 25.4% difference we observed in 2023).  All failed proposals in 2024 received a negative ISS recommendation (against or do not vote).

The following table summarizes the average percentage of votes cast by shareholders on say-on-pay proposals, broken down by ISS recommendations, for full-year 2023 and through May 20, 2024.

3. Analysis of Failed Proposals and ISS Focus Areas

Say-on-pay votes did not appear to be particularly “sticky” year over year. Among the S&P 500, six of the 13 companies that had failing say-on-pay votes in 2023 have had their say-on-pay votes as of May 20, 2024. All of these voted 2024 proposals passed, with support ranging from 61.7% to 94.7% of votes cast. Two of the 13 companies have pending votes, and the remaining companies do not appear to be holding say-on-pay votes this year. Among the broader Russell 3000, twelve of the 50 companies that had failing say-on-pay votes in 2023 have had their say-on-pay votes as of May 20, 2024—all of these voted 2024 proposals have passed.

Taking a closer look at the three companies in the S&P 500 and six companies in the broader Russell 3000[4] that failed their say-on-pay votes in 2024, we noted that none of them had a failed vote in 2023. In fact, each company received over 80% of votes cast on their say-on-pay proposals in 2023.

The ISS recommended “Against” each of the failed proposals in 2024. An analysis of the ISS reports for these six companies indicated that (1) pay-for-performance, (2) limited rationale for compensation and (3) setting non-rigorous performance goals are the key drivers of ISS’s negative recommendations. Among these criteria, pay-for-performance appeared to be the most important for each company, with ISS indicated “high” concern for four of the companies and “medium” concern for one of the companies. For one company, ISS found “low” concern on pay-for-performance, but focused on compensation adjustments that exclude costs associated with a safety incident. ISS also identified lack of pre-set criteria and clarity around compensation incentives and rationales as another key area of concern for five of the companies.

4. Industry Concentration of Failed/Low Votes and ISS Negative Recommendations 

Among the S&P 500, only companies in the Industrial and Technology sectors have received failing say-on-pay votes in 2024,[5] whereas in 2023, S&P 500 companies with failing proposals spanned the Industrial, Technology, Health Care, Real Estate, and Financials sectors.  Companies in the Industrial and Technology sectors also had the highest percentage of proposals (including passing and failing proposals) with below 70% of votes cast in 2024. In contrast, no say-on-pay proposals in the Health Care, Real Estate, Materials and Energy/Utilities sectors have received less than 70% of votes cast in 2024.

Among the broader Russell 3000, the industries with the highest percentages of failed votes are Industrial, Energy/Utilities and Technology, whereas no Health Care companies had a failed vote. (In 2023, companies in every sector had a failed say-on-pay vote). Similar to S&P 500 trends, companies in the Industrial and Technology sectors had the highest percentage of proposals (including passing and failing proposals) with below 70% of votes cast in 2024.

ISS’s 2024 negative recommendations also seemed to be more concentrated in the same industries. In 2023, ISS made at least one negative recommendation in every industry. However, in 2024, S&P 500 companies in the Industrial and Technology sectors had the highest prevalence of ISS negative recommendations, whereas no S&P 500 company in the Health Care or Real Estate sector received a negative recommendation. Among the broader Russell 3000, the Technology, Financials and Industrial sectors had the highest prevalence of ISS negative recommendations, whereas no Health Care company received a negative recommendation.

The authors would like to thank Elizabeth Peartree, their summer associate, for her contributions.

Endnotes