Several themes have begun to emerge as proxy season hits its peak period for 2021, including higher levels of shareholder criticism of executive pay plans.
Average support for executive compensation proposals declines to below 90% across the market. Shareholders have expressed a broad range of concerns, not solely focusing on a specific practice (such as COVID-19 adjustments or discretionary actions) in expressing their concern. Semler Brossy has tracked vote results for both the S&P 500 and the Russell 3000—each show significant declines in shareholder approval. Historically, S&P 500 companies have received approximately 91% shareholder support. So far in 2021, that level has declined to 87%. The Russell 3000 is averaging 89% support, down from 91% historically. Additionally, ISS recommendations against SOP proposals are near their highest level since 2011 (13.6% against in the Russell 3000).
Voting trends for the S&P 500 through May 8th break down as follows:
- 95 received more than 80% say-on-pay support,
- 12 received between 50-80% support, and
- 7 failed to receive 50% support.
Several prominent companies have received media attention on close voting results. Meanwhile, BlackRock indicated it doubled votes against management on compensation related proposals versus Q1 2020, from 7% against to 15% (including votes on frequency of SOP votes). The Financial Times noted that more than 100 companies in the S&P 500 modified incentives in response to the pandemic, but relatively poor performance leading up to the pandemic, changes to equity awards, and poor proxy disclosure seems to push shareholders to vote against.
Outlook: Shareholder support for say-on-pay proposals is likely to remain depressed for 2021 meetings. Rightly or wrongly, pay adjustments in response to COVID-19 are exposing simmering concerns about pay for performance. Critics have highlighted concerns that pay for performance only seems to apply when things are going well. Pay equality advocates have been quick to highlight that companies moved to protect executives’ pay on the downside while employees suffered. Broadly, it is reasonable to estimate that shareholder support for say-on-pay proposals will modestly decline in the near future. Further, companies should anticipate increased engagement on executive compensation and direct questions about metric selection and performance determinations, as well as talent management practices that might exacerbate pay equity concerns.
