Proxy season is hitting its peak period for 2021 (as is typically the case in the last week of April and first week of May) and several themes have begun to emerge, including overall higher levels of shareholder criticism for executive pay plans. Shareholders have not focused on a specific practice (such as COVID-19 adjustments or discretionary actions) in expressing their concern. Rather, investors seem more broadly concerned with executive pay and have voted against numerous proposals for a wide range of reasons. 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%. 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 break down as follows:
- 95 received more than 80% say-on-pay support
- 12 received between 50-80% support
- 7 failed to receive 50% support
Several very prominent companies have received media attention on close voting results, as highlighted by the
Wall Street Journal. Similarly, 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).
Two recent shareholder meetings illustrate these trends: Prologis (uncommon 100% equity pay mix for CEO) and Wells Fargo (multiple concerns with discretion and the use of time-based equity).
- Prologis (PLD) has seen impressive TSR performance over the short and long-term. The average annual TSR growth over the previous five years has been just under 22%. However, the logistics real estate company has a complex series of long-term incentives that target relative performance and investment returns. Shareholders expressed concern with the qualitative elements of the annual grants and the rapidly increasing value of the separate overperformance awards (based on three-year TSR as compared to the MSCI REIT Index) which increases the amount of equity in addition to realizing gains in the share value. The company received 49.9% shareholder support for its Say on Pay proposal (including abstentions).
- Wells Fargo (WFC) has seen negative TSR over the short and long-term and concerns remain about corporate governance in the wake of the fake accounts scandal. For 2020, shareholders were unhappy that the CEO received a bonus payout despite the company's failure to meet pre-set threshold goals. Additional concerns were raised about the shift away from performance-based equity. The CEO's equity mix shifted from entirely performance-based in each of the last three years to half performance-based while the relative TSR hurdle is less rigorous compared to the prior year's awards. The company received 57.8% shareholder support for its Say on Pay proposal.
