Say-on-Pay

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ISS Releases Preliminary Updates to 2020 Compensation-Related Policies

As we previously discussed, ISS recently released its U.S. Preliminary Compensation Policies FAQ, which provides interested parties an advance view of ISS’ answers to select questions posed to ISS regarding potential changes to its U.S. compensation policies.  Updated compensation-related FAQ documents and a methodological whitepaper—which will include a detailed introduction of ISS’ new Economic Value Added (EVA) metrics—will be available in mid-December. 
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Is an Eventual Negative Say-on-Pay Recommendation Almost Inevitable?

Results of a study published in April 2019 by the executive compensation consulting firm Pearl Meyer suggest that Russell 3000 companies which have not yet received an “Against” Say-on-Pay (SOP) recommendation will likely receive one down the road. The firm states that “it’s reasonable to expect that at some point in the future, more than 80% of companies will have fallen victim to a negative vote recommendation at least once.”
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A Say-on-Pay Update — Plus Strategies for Responding to a Negative Recommendation by a Proxy Advisory Firm

The proxy season is just around the corner for calendar year public companies. Ahead of the season, two major proxy advisory firms, Institutional Shareholder Services (ISS) and Glass Lewis, recently released their 2019 policy updates to provide guidance on how they will make recommendations on companies’ “say-on-pay” vote. Although a non-binding vote, performing poorly on a say-on-pay vote is not only disheartening, but can impact shareholder votes on election of directors (particularly compensation committee members), result in greater scrutiny of CEO performance, and require management and compensation committee members to expend significant time and resources to address concerns reflected by the vote.
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Recent European Compensation Developments

The Eurozone crisis and ensuing populist resentment over perceived compensation excesses have given rise to a recent wave of compensation measures and restrictions in Europe. As we explain in our memo, the measures range from a cap on financial institution bonuses (the so-called “banker bonus cap”) in the EU, binding say-on-pay votes in several European jurisdictions and even criminal sanctions for violating compensation restrictions and corporate governance requirements in Switzerland.
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Say-on-Pay Results Reflect Need to Understand Proxy Advisory Firm Methods

According to the latest Semler Brossy report, only three Russell 3000 companies (Nuance Communications, Digital Generation and Navistar) have failed their say-on-pay vote, with Navistar receiving only a startling 18% in favor. ISS has been recommending against companies about 9% of the time, and companies facing ISS opposition received 24% less support on average. Interestingly, ISS continues to reverse unfavorable recommendations.
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Early Examples of Companies Disputing ISS Say-on-Pay Recommendations

So far, as we launch into the proxy season, only a handful of companies have filed additional soliciting materials to dispute proxy advisory firm recommendations. These materials were almost ubiquitous last season, and it is unclear whether the recent changes in the formulation of comparative peer groups by the advisory firms will curtail their numbers.

Piedmont Natural Gas Company provided in detail several points of contention with the ISS negative recommendation.
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Two Company Wins for Say-on-Pay Proxy Disclosure Lawsuits (Symantec and Apple)

In our recent client alert, “Recent Developments in Executive Compensation,” an open question was the fate of Gordon v. Symantec Corp. (and similar cases) after the court denied a preliminary injunction to enjoin the company’s say-on-pay vote.  At the time of our client alert, a demurrer to the plaintiff’s class action complaint was pending.
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ISS Provides Guidance on Compensation-Related Voting Policies

On December 20th, ISS issued two extensive FAQs on their voting policies. This post covers the compensation items (a previous post covered the non-compensation items).

Although the compensation FAQs contain a number of items previously posted by ISS, there are a few new items worth noting, including:

  • For the CEO Tally Sheet table, how the present value of all accumulated pension benefits (qualified and non-qualified) is calculated (page 7).

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Investors and a Study on the Use of Peer Group Benchmarking

Given say-on-pay votes, companies are interested in understanding how their shareholders view executive compensation. At the always informative NASPP conference, Michelle Edkins from BlackRock and Ann Chapman from Capital Research both mentioned a recent paper from Charles Elson of the Weinberg Center for Corporate Governance, titled “Executive Superstars, Peer Groups and Over-Compensation – Cause, Effect and Solution.”
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Say-on-Pay Litigation Update

Since our last blog post on say-on-pay litigation in January 2012, there have been several dismissals of say-on-pay lawsuits on procedural grounds – principally the failure of plaintiffs to satisfy the demand standard, which requires a plaintiff seeking to bring a derivative action to first make a demand on the corporation’s board so that it can determine whether to pursue the action.
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Glass Lewis Changes Its Say-on-Pay Analysis

For the past two proxy seasons, companies have criticized how proxy advisory services have selected company peer groups in order to evaluate “pay for performance” for purposes of making say-on-pay voting recommendations. Recently, Glass Lewis announced changes in their peer group selection methodology that will affect annual meetings held after July 1, 2012.

On July 12, 2012, Glass Lewis hosted a “proxy talk” during which they outlined enhancements to their proprietary pay-for-performance model.
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Anticipating the Future of Corporate Governance at the Society’s National Conference

Cognitive bias leads to faulty decisionmaking, warned Vice Chancellor J. Travis Laster at the National Conference of the Society of Corporate Secretaries and Governance Professionals. In his address, he used an example of a Delaware case to demonstrate the collective desire to develop information to support a preconceived goal rather than reach independent conclusions, the fallacy of groupthink that avoids hard questions, the tendency to prefer data that confirms a prior belief and the likelihood of taking immense risks to avoid losses, noting that the Court looks for the presence of those biases in examining cases.
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U.K. Government Publishes Consultation Paper Regarding Draft Regulations Governing Remuneration Reports

Following closely on the heels of its announcement of a package of proposals  intended to curb executive remuneration, the U.K. Government recently published a consultation paper focusing on the content of remuneration reports of UK-incorporated quoted companies that would disclose the compensation of directors, including executive directors.  While much of the consultation paper simply echoes the announcement, which we summarized in our memo, it is fairly detailed and merits a close read. 
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Summer Watch-List of Governance Developments

While proxy season has ended for most companies, there are a number of governance matters worth keeping an eye on during the summer months:

SEC Rulemaking.  The SEC website noting upcoming Dodd-Frank activity still indicates a number of actions slated before the end of June, including proposing rules regarding disclosure of pay-for-performance, pay ratios, hedging by employees and directors and recovery of executive compensation.
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U.K. Proposes Binding “Say on Pay” and a Limitation on Executive Severance Arrangements

The U.K.’s implementation of “say on pay” in 2002 is widely considered the harbinger of mandatory “say on pay” in the United States. So far, in both countries, the shareholder advisory vote on executive compensation has been non-binding on companies and their boards. Now, the U.K. appears to be moving toward a binding regime. Earlier this spring, the U.K.
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NYSE Webcast Panel Reflects on the 2012 Proxy Season

On Tuesday, I was fortunate to co-moderate a NYSE-sponsored webcast with Judy McLevey at the NYSE, as we discussed the leading proxy and governance issues for 2012 with a group of recognized experts that included Doug Chia from Johnson & Johnson, Michelle Edkins and Robert Zivnuska from BlackRock, Gordon McCoun from FTI Consulting and Pat McGurn from ISS. 
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Lessons Companies Can Learn from CalSTRS “Lessons Learned”

CalSTRS recently released a paper, “Lessons Learned: The Inaugural Year of Say-on-Pay,” in which they detailed their reasons for voting against companies’ 2011 Say-on-Pay proposals.

Surprisingly, CalSTRS voted against 23% of the say-on-pay proposals on which they voted during the 2011 proxy season, citing a pay for performance disconnect as the primary reason. In looking at the pay for performance disconnect, CalSTRS found that most of the companies they voted against had negative 5-year performance numbers.
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Implementation of New Disclosure on Say on Pay Results

Among the new proxy disclosure requirements under the Dodd-Frank Act is the mandate that issuers disclose in their CD&A “[w]hether, and, if so, how the registrant has considered the results of the most recent shareholder advisory vote on executive compensation… in determining compensation policies and, if so, how that consideration has affected the registrant’s executive compensation decisions and policies.” 
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Mixed Signals on the Future of Say on Pay Litigation

The Oregon district court provided a ray of hope for companies fearing the possibility of shareholder say on pay litigation when it handed down its January 11, 2012 decision granting Umpqua’s motion to dismiss a shareholder derivative suit alleging directors’ breach of duty and officers’ unjust enrichment after an increase in executive compensation.  In the decision, Magistrate Judge Acosta rejected the shareholders’ arguments that demand was futile because the directors were not independent or disinterested.
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ISS’s New Pay-For-Performance Review Framework is Now in Place

In December, ISS issued a whitepaper providing further guidance on its new pay-for-performance review framework first introduced in its 2012 proxy voting guidelines update (effective for meetings on or after February 1, 2012).  As described in our memo New ISS Policies Overhaul Say-on-Pay Analysis (November 29, 2011), the revised pay-for-performance methodology includes both a three-part quantitative analysis and a qualitative analysis. 
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2012 Proxy Season: Early Filers Disclose the Impact of 2011 Say On Pay Voting Results

Proxy season 2012 has begun and we’re beginning to see disclosure on the impact of last year’s say on pay voting results.  As of December 16, 2011, 14 large accelerated filer companies have filed proxy statements for the 2012 season.  These proxy statements disclose whether, and to what extent, the companies considered the results of their 2011 management say on pay proposal and how that affected their compensation decisions and practices. 
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Issuer Engagement with Institutional Investors – Advice from Donna Anderson at T. Rowe Price

Engagement with shareholders plays an increasingly important role in strengthening issuers’ corporate governance practices.  With proxy season around the corner, we turn to Donna Anderson, a vice president of T. Rowe Price Associates, Inc., and global corporate governance analyst in the U.S. Equity Division of T. Rowe Price., for her perspective on company efforts.  In her current role, Donna leads the policy-formation process for proxy voting, shepherds the firm’s engagement efforts with portfolio companies, and is co-chair of the Proxy Committee.  
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Early Golden Parachute Shareholder Vote Results

Section 951(b)(2) of Dodd-Frank requires companies to hold a non-binding shareholder vote on executive severance packages (golden parachutes) in connection with M&A transactions that are presented for shareholder approval.  Shareholder votes on golden parachutes have been required since April 25, 2011.  Pearl Meyer & Partners recently completed a study on the outcomes of such shareholder votes held between April 25, 2011 and September 26, 2011.
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