In its
review of the 2021 proxy season, Glass Lewis notes that investor viewpoints on governance and pay are coalescing around key areas of concern, increasing the likelihood of negative votes at companies where those concerns manifest while generally increasing support for companies that avoid such concerns.
Highlighted trends:
- Executive compensation - Just under half (45.6%) of companies made changes to compensation plans in response to COVID. Nearly a quarter (23.1%) of companies adjusted performance metrics in response to the pandemic.
- ESG - Average shareholder support for environmental proposals jumped from 31% to 42% year-over-year, and support for social proposals rose from 28% to 31%.
- Over 80% of proposals asking for more information on climate lobbying and 100% of GHG emissions reduction targets proposals received majority support.
- Support for HCM proposals rose from an average of 28% in 2020 to 45% in 2021.
- Two-thirds of those proposals asking for additional diversity reporting received majority support, as did each of the proposals asking for more information on mandatory arbitration.
Looking Ahead:
- Increased votes against directors for insufficient risk oversight of E&S concerns.
- Shareholder “vote no” campaigns in response to perceived failures to manage climate risk produced notable drops in director elections with targeted candidates seeing support fall into the 80-90% range as compared to the 94% average support level.
- Problematic pay practices will drive more failed say-on-pay votes.
- In 2021, the most common reason for an adverse vote recommendation was an excessive or problematic equity grant. For the prior two years, it was a disconnect between pay and performance.
Overall, the report highlights that many of the issues faced since COVID hit in 2020 are ongoing and producing multiple, and sometimes, conflicting pressures. For example, companies were under intense pressure to ensure employee and customer safety during the pandemic. Now, shareholder pressure on ESG concerns is shifting from disclosure to performance as companies are expected to actively address societal concerns. Meanwhile, companies are continuing to deal with COVID impacts. If performance has yet to recover, they may feel pressure to issue extraordinary grants to hold onto executives. However, poor vote results from 2021 may serve as a cautionary flag to boards on retention grants.
