Positive Say-on-Pay Votes Continue, Large Majorities Support Company Proposals

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By Kelsey Penna  

July 31 — As the 2014 proxy season comes to a close, results show that an overwhelming majority of shareholders at the largest U.S. public companies approve of their say-on-pay proposals.

That's according to Michael Hermsen, a Mayer Brown LLP partner in Chicago, speaking during a July 31 Mayer Brown webinar summarizing the 2014 proxy season.

Citing Institutional Shareholder Services Inc. figures, Hermsen said the say-on-pay proposals that shareholders have approved this season have received an average of 91.7 percent support. Moreover, out of the 2,229 say-on-pay proposals submitted so far this year, only 51 failed to win majority support.

Hermsen emphasized that these numbers could change because not all companies have held their 2014 annual shareholder meetings. If these results hold, however, they would mark a fourth straight year of positive say-on-pay results.

Investors still have concerns when it comes to a perceived inadequate relationship between pay and performance, lack of difficulty in achieving performance goals and problematic pay practices at a company, said Hermsen, a former assistant director of the Securities and Exchange Commission's Division of Corporate Finance. These concerns are generally company specific and haven't changed much during the last few years, he added.

Companies More Proactive

Since the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 required nonbinding say-on-pay votes to approve executive pay at least once every three years, and the SEC adopted its corresponding rule thereon, investors have used the say-on-pay vote to communicate more with management.

Companies are more proactive in reaching out to shareholders outside of the proxy season, resulting in more meaningful dialogue about the concerns, Hermsen said. An ISS study released in April tied say-on-pay votes to a rising level of engagement between corporations and shareholders.

Other Dodd-Frank Requirements

Pay ratio disclosures, clawbacks and hedging disclosure are other Dodd-Frank compensation requirements still awaiting final SEC action, said Laura Richman, counsel for Mayer Brown's corporate and securities practice.

It is unclear when the SEC will adopt these rules, but it is unlikely they will affect the 2014 proxy season. Some attorneys have said the SEC will propose clawback regulations later this year, but they will not take effect until mid-2015. The SEC has said it is targeting October to finalize its pay ratio rule.

To contact the reporter on this story: Kelsey Penna in Washington at kpenna@bna.com

To contact the editor responsible for this story: Ryan Tuck at rtuck@bna.com