A recent Semler Brossy report examining the relationship between 2018 CEO Pay Ratio and Say on Pay Results concluded that CEO Pay Ratio has an inverse relationship with Say on Pay but is not a primary driver of Say on Pay Results. With most companies now having filed their 2018 CEO Pay Ratios and reported Say on Pay vote results, the report covered 1,611 Russell 3000 and 364 S&P 500 companies.
It found that there was a weak, inverse relationship between CEO Pay Ratio and Say on Pay for Russell 3000 companies. Average Say on Pay support for Russell 3000 companies with a CEO Pay Ratio above the index’s median was 89.3% compared to 91.8% for those below the median. However, the 21% of Russell 3000 companies that had a ratio above 175:1 made up a disproportionate 46% of Say on Pay vote failures. The inverse relationship was stronger for the S&P 500, where average Say on Pay support was 87.0% for above-median companies compared to 91.6% for those below the median.
To date, 51 Russell 3000 companies (2.6%) have failed their Say on Pay votes, and overall vote support (90.4%) will be the lowest since 2012 if that level continues through year end. As in prior years, ISS recommendations are a primary driver of Say on Pay results. 2018 Say on Pay vote results were 31% lower at companies that ISS recommends “Against,” which Semler Brossy notes is toward the higher end of the historical average of 25-30%, possibly due to increased alignment of institutional shareholder voting with ISS recommendations.