Below is an excerpt from ISS Corporate Solution’s recently released paper “Say-On-Pay: How Responsive Companies Can Win Back Shareholder Support.” The full paper is available for download from the ISS Corporate Solutions (ICS) online library.
Median support for say-on-pay proposals reached an all-time low in 2022 and the percentage of companies receiving less than 70 percent investor backing climbed to a record high. That has prompted many compensation committees to evaluate what actions, if any, should be taken in response to the evident shareholder discontent.
While some may be motivated to rethink the firm’s compensation programs, others may ignore the low support, attributing it to a one-off issue that’s unlikely to be repeated. Many investors, however, expect companies to address the underlying issues when there is a material opposition to their say-on-pay proposal. In this paper, we examine how compensation committees reacted to low shareholder support on say-on-pay and how their response impacted voting in the following year.
Our research show that companies that engage with shareholders are more likely to see an improvement in support for their compensation proposals, while those who don’t will probably continue to get lower support. Robust responsiveness, with extensive shareholder outreach and actions to address concerns, appears to have had the most impact on increasing support. Even when companies are unable to fully address all of their shareholders’ concerns, data suggests that demonstrating even moderate responsiveness—making an effort to listen to investors views and feedback—is effective in improving shareholder support after a weak result.
- Median support for say-on-pay proposals fell to an all-time low in 2022
- A total of 136 companies in the Russell 3000 Index received less than 70 percent support for their say on pay proposals in 2021
- Companies with the highest levels of responsiveness to investor concerns saw the biggest gains in investor support in 2022 over 2021
- Corporates with more moderate levels of responsiveness also saw investor support rise compared with 2021
- In some cases, companies with a high level of engagement still saw say-on-pay support fall in 2022, while others with low responsiveness saw a gain
By: Carmen Luk, Associate, ISS Corporate Solutions
Valeriano Saucedo, Associate Vice President, ISS Corporate Solutions