Below are key takeaways from ISS’ recently released United States Compensation 2021 Proxy Season Review. The full report is available to institutional subscribers by logging into ProxyExchange then selecting the Governance Exchange and its Report Center tab and to corporate subscribers by logging into Governance Analytics then selecting the Governance Exchange and the Report Center tab.
- Say-on-pay support continued its downward trend, while the failure rate matched the record high. Since 2018, the median say-on-pay vote support has declined each year and remained below 96 percent in 2021. The percentage of companies with failed say-on-pay votes increased to 2.6 percent, up from 2.1 percent in 2020. This is tied with 2012 as the highest failure rate since mandated votes began.
- CEO pay levels again reached record levels, despite widespread salary freezes and reductions. Continuing CEOs in the S&P 500 as well as the Russell 3000 saw overall pay increases that were primarily due to larger long-term equity incentives. The median CEO pay package was at an all-time high in both indices, despite the fact that many companies froze or reduced base salaries in response to the pandemic.
- COVID-related issues dominated disclosures and pay decisions. Compensation committees grappled with the increasingly difficult task of implementing executive pay programs that account for new realities and shifting strategies. Many companies that elected to make adjustments to in-progress long-term incentives faced investor opposition, leading to a number of high-profile say-on-pay failures.
- The use of discretionary bonuses increased, in part due to the pandemic creating uncertainty around goal-setting. The prevalence of discretionary CEO bonuses increased in both the S&P 500 and non-S&P Russell 3000, as many compensation committees had difficulty setting goals amid the pandemic. Further to this, payouts of formal performance-based bonus programs decreased in both indices.
- Companies continue to emphasize performance-vesting equity incentives. Within the S&P 500, most companies continued to deliver the majority of the value of CEO equity awards in performance-vesting vehicles. The proportion of CEO equity awards as performance-vesting reached a new high of 58 percent.
- Companies are improving disclosure around non-employee director pay. Despite an increase in the number of instances of outlier director pay levels identified, with each year more companies are disclosing reasonable explanations. Approximately three-fourths of companies disclosed a sufficient rationale for high director pay, up from two-thirds of companies in the prior year.
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By Rachel Hendrick, David Kokell, Kevan Marvasi, Chris Scoular, Galen Spielman, Mete Tepe, Juliana Vaughn, Liz Williams