From the February 2012 issue of Treasury & Risk magazine

More Comp Votes

Facing a second year of say-on-pay votes, companies hone the compensation descriptions in their proxy statements.

Executive compensation will be a hot topic during the upcoming proxy season, which will see a second round of say-on-pay votes. Last year, only about 45 companies failed to win majority approval for their pay packages for executives, even though proxy advisory firms had recommended “no” votes for about 300 companies. But there is no room for complacency because this year proxy advisory firm ISS set the bar higher for the advisory votes on pay, suggesting that approval levels below 70% should trigger a closer look at a company’s compensation.

Companies that fail to achieve that 70% level may want to rethink their compensation plans or defend them, says Don Keller, a partner at PwC’s Center for Board Governance.

Martin Dunn, a partner at O’Melveny & Myers in Washington, notes that when investors are unhappy about a company’s executive pay, “quite often it’s not what needed to be changed, it’s what needs to be better explained.”

Companies often need to do a better job of showing how pay relates to the company’s performance, a task that Dunn says can be difficult in a down economy. “It’s not just, ‘Here are the targets,’ it’s, ‘Here’s why these are our targets, why we chose to pay our executives the way we did, based on our performance.’”

Companies that didn’t win strong support for their pay programs last year will take a closer look at how they describe their plans in the compensation discussion and analysis (CD&A) section of the proxy, Keller agrees. A PwC survey of corporate directors last fall showed 45% used simpler language and 31% added an executive summary.

Over the years, companies kept adding things to the CD&A until it became too long and “over-lawyered,” Dunn says. Companies realized “that they had a really good story to tell, and the proxy was so long, it might hide the story.” Some used an executive summary to make key points last year and got such a good response, more will be “jumping on board,” he says.

Corporate campaign contributions are expected to be another big focus, reflecting both the presidential election this year and the U.S. Supreme Court’s 2010 Citizens United decision, which lifted a ban on corporate political contributions.

And although a Securities and Exchange Commission rule allowing shareholders to nominate corporate directors was shot down in court last year, this year will see the first efforts to establish that same access using proxy measures seeking changes in the bylaws of individual companies, under the SEC’s Rule 14a-8. 


For a look at last year’s initial round of say-on-pay votes, see A Say on Voting On Pay.

And read about the possible consequences of such votes in Failed Say-on-Pay Votes Spur Litigation.



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