Collateral Impact of Low Support In Say-On-Pay Now Becoming Clearer

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By Yin Wilczek

June 19 — While companies overall are doing better on say-on-pay, the “collateral” impacts of a negative vote also are becoming increasingly evident, an attorney said June 19.

According to compensation consultant Semler Brossy, companies that perform poorly on say-on-pay will garner lower shareholder votes for their compensation committee members the following year, said Ronald Mueller, a Washington-based partner at Gibson, Dunn & Crutcher LLP.

The votes “tend to be 5 percent lower on average” compared to companies that don't fail say-on-pay, he said, speaking on a panel at an ALI-CLE executive compensation conference.

Mueller also noted that last year, New York City Comptroller Scott Stringer targeted 25 companies for proxy access because they failed say-on-pay. Proxy access resolutions have been “wildly successful,” with two-thirds passing and an average level of support of about 57 percent, he added.

Attracting Activists 

Generally, executive compensation has become an issue that draws shareholder activists, Mueller said. As the latest example, he cited the proxy fight at Shutterfly Inc. in which two dissidents were elected to the company's board at its June 12 annual meeting.

The two seats were out of three sought by activist Marathon Partners Equity Management LLC, who faulted Shutterfly over its executive pay, acquisition strategies and performance.

The negative consequences show why say-on-pay matters, and why companies that fail their vote and those in the 50 percent to 70 percent “watch zone” should take heed, Mueller said.

Referencing the Semler Brossy statistics—which were accurate as of June 10—Mueller noted that the number of companies failing say-on-pay appears to be decreasing compared to 2014. That trend is evident even over the longer term, he said. While that may be due to the strong performance of the market, Mueller suggested that companies increasingly are adapting their pay programs for say-on-pay.

Co-panelist Steven Hall, managing director of compensation consultant Steven Hall & Partners LLC, agreed. In addition to adapting, companies also are “doing a much better job of telling the story and winning the vote,” Hall said.

Proxy Disclosure Trends 

In other remarks, Mueller said he has observed three trends in 2015 proxy statement disclosures around executive compensation:

• Companies are making an increasing effort to show the connection between their pay and performance goals. As an example, he pointed the audience to Starbucks Corp.'s disclosure.

• More and more companies are including a shareholder engagement section in their disclosures. As examples, Mueller cited the disclosures by Coca Cola Co. and General Electric Co.

• Companies increasingly are focusing on incentive compensation.


On incentive compensation, Mueller noted that “we're really seeing a very large shift” where companies are “dramatically cutting back the amount of stock options that they’re awarding and putting in performance-based” restricted stock units.

Shareholder Resolutions 

Mueller also discussed shareholder proposals involving executive compensation. Such resolutions were impacted this proxy season by the Securities and Exchange Commission's suspension of the “conflicting resolution” exemption, he said.

The SEC staff is reviewing 1934 Securities Exchange Act Rule 14a-8(i)(9), and no-action relief under the provision has been suspended since January.

Mueller observed that companies usually request no-action relief for shareholder proposals touching on compensation arrangements if the issuer in question is putting out a stock plan with terms that conflict with the proposal. Because the exemption was not available this year, shareholders were asked to vote on more executive pay-related shareholder proposals than in the past, he said.

Mueller said 118 proposals were submitted this year, of which 61 were voted upon as of June 1. The resolutions garnered an average level of support of 26 percent and only one—a proposal to First Merit on the vesting of equity awards to senior executives in event of a change in control—passed, he said.

To contact the reporter on this story: Yin Wilczek in Washington at

To contact the editor responsible for this story: Ryan Tuck at

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