The 2021 proxy season was expected to be dramatic, and initially, vote trends showed increased opposition to say-on-pay as well as several high-profile meetings indicating substantial shifts in shareholder sentiment on ESG risks. However, deeper into the season, oppositional voting declined, and trends became more nuanced. The findings are presented in Semler Brossy’s final
2021 Say on Pay Report; highlights include:
- The failed vote rate for the Russell 3000 was 2.8% compared to 2.2% in 2020 while the S&P 500 failure rate was 3.7%, up from 2.2% in 2020.
- 18 of the 56 failures in the Russell 3000 were likely driven by COVID-19 related adjustments to CEO pay.
- S&P 500 companies that held earlier meetings saw markedly higher failed votes rates – 10.5% - while later on, the rate trended down to 3.7%. However, the failure rate for the Russell 3000 showed more moderate fluctuation – from 4.0% of early meetings to 2.8% by the end of the season.
- The article speculates that investors may have modified their evaluation processes as proxy season progressed while companies with later meeting dates beefed up their disclosures.
- Though there is no formal schedule, industries tend to cluster their annual meetings. For example, the oil and gas industry has generally held earlier meetings and has faced shareholder discontent for several years, leading to a cluster of failed votes in early April.
- Companies in the utilities (94.5%) and materials (93.2%) saw the highest levels of average support. Despite the vast challenges of the pandemic, consumer discretionary companies saw broad support – 89.8% on average.
- ISS recommended against 10.9% of Russell 3000 companies, unchanged from last year.
- The average support level for a company with an “against” vote recommendation from ISS was 31% lower than those with a “for” recommendation. That is the near the historical high of 32%.
- Average support and failed vote rates for equity plan votes (which are binding, unlike a say on pay vote) were unchanged – 89.2% and 0.5%, respectively.
It is not clear if voting patterns will carry forward. The article specifically notes that problematic pay practices and special awards each saw increases in driving negative votes. Problematic practices were prominent in 75% of negative votes in 2021, jumping from 56% last year. Special awards increased to 57% versus 36% in 2020. If special awards decline substantially in 2021, it is likely that 2022 vote results will shift towards normal for say-on-pay.
