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By Robert Newbury and Henry Mbom | April 27, 2022

Early results shed light on investors’ 2022 views on pay

While it is still in the early stages of the 2022 annual meeting season for U.S. companies, say-on-pay vote results are already starting to get us a glimpse into 2021 pay levels and investors’ reactions. Among the largest U.S. firms, early indications suggest pay in 2021 was up over 2020 levels as performance stabilized following the uncertainty of the pandemic in 2020. At the same time, early say-on-pay voting outcomes suggest investors overall are monitoring and voting against pay packages at rates equivalent to those we’ve seen over the past decade or more of mandatory say-on-pay votes. This summary provides insights into our early findings: 2022 U.S Executive Pay Votes (see below).

Average support for 2022 proposals tracked thus far stands at 89% of votes cast. Proxy advisory firm Institutional Shareholder Services (ISS) has recommended voting against 9% of say-on-pay proposals in 2022. Four companies have reported failed 2022 say-on-pay votes, out of the 159 Russell 3000 companies that have reported results as of April 19, 2022 (2.5%). By way of comparison, in all of 2021, average support for say-on-pay resolutions was 90% of votes cast; ISS recommended votes against 12% of proposals, and 3.0% of votes failed to achieve majority support (71 companies).

89% of votes cast
support 2022 proposals

As has been the case in previous years, the most common concern investors cite about pay plans involves pay-for-performance disconnects, cited as a high concern at 69% of ISS’s against recommendations in 2022 so far, down from 77% in all of 2021. Looking specifically at the pay-for-performance concerns, investors frequently vote against companies where long-term incentive are not deemed sufficiently performance-based or incentives in general lack sufficient performance hurdles. Two additional concerns are a lack of responsiveness to a previous year’s say-on-pay vote and employment contract and severance issues, with both registering 23% high concern by ISS against recommendations so far in 2022.

69%
of ISS's 'against' recommendations are based on pay-for-performance concerns

Investors and their advisors look at outliers in terms of both pay magnitude and year-over-year increases in pay when making say-on-pay voting decisions. In 2021, those targets were concentrated at the largest firms, which led to greater say-on-pay opposition at these firms relative to previous years. With many of the largest pay increases in 2021 CEO pay concentrated among the largest firms compared to previous years, companies within the S&P 500 made up 30% of the failed say-on-pay votes in 2021, up from 17% in 2020. The proportion of failed votes from S&P Midcap companies went up from 12% in 2020 to 20% in 2021. Meanwhile, failures concentrated at smaller firms (Russell 3000 companies outside the S&P 1500) dropped from 54% in 2020 to 30% in 2021. For a more detailed report summarizing the 2021 proxy season, please download our 2021 Say on Pay Review (see below). The summary covers 2021 voting trends on say on pay, say on golden parachutes and equity plan proposals. Slides include several topic breakdowns, all using data as of December 31, 2021.

companies
have failed say-on-pay votes as of today

To date, investors’ attitudes toward pay as measured though say-on-pay votes do not seem to have shifted significantly in 2022. As pay levels are revealed in new filings and incentive payouts examined, investors will continue to look for pay-for-performance disconnects to determine most say-on-pay voting decisions. Those companies that significantly increase compensation amounts, lower goals without providing a valid explanation, or lack adequate disclosure or rationale for decisions relating to executive compensation plans will undoubtedly face increased scrutiny from investors and potentially higher say-on-pay opposition.

Download
Title File Type File Size
U.S. Executive Pay Votes: 2021 Proxy season review PDF 1.6 MB
Authors

Senior Director, Global Executive Compensation Analysis Team (Columbus)

Senior Associate, Executive Compensation (New York)

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