May 27, 2014
During the 2014 proxy season, U.S. public companies have had, on average, results that are consistent with last year’s Say on Pay votes, with nearly three-fourths of the companies in the Russell 3000 receiving greater than 90% shareholder approval. Average Say on Pay support has increased marginally to 90.8% while only a small minority of companies (1.7%) have failed. Though Say on Pay support levels remain high as in past years and are projected to be slightly higher in 2014, what has changed year over year are the specific companies that receive less than majority support. Many companies fail after a year in which they received over 80% or 90% shareholder support, which could be due to a specific factor, such as exceptionally poor performance, but can also be influenced by a negative recommendation from a proxy advisor firm or an activist investor taking a special interest in a company’s pay practices.
The 2014 proxy season has also seen a continued high rate of corporate governance-related shareholder proposals at public companies, including those calling for declassification of the board, majority voting standards in director elections, separation of the chairman and CEO roles, and shareholders’ right to call special meetings. As in previous years, these corporate governance-related proposals continued to receive high levels of support from shareholders, and 20 so far in 2014 have received majority support. Shareholder proposals on social issues (e.g., political contributions and lobbying activities), environmental causes (e.g., sustainability reporting), and compensation-related matters (e.g., acceleration of vesting upon a change in control) also remained prevalent but, as has been observed historically, generally received far less support than corporate governance proposals and rarely received majority support.
Russell 3000 Say on Pay Voting Results
Over the four years in which Say on Pay has been in effect, support levels have varied only slightly and have overwhelmingly affirmed existing compensation practices. In 2014, the vast majority of companies continued to receive a high showing of support, and so far, the percentage receiving a ‘failed’ Say on Pay result of less than 50% support is consistent with past years.
Twenty-six companies (1.7%) have so far failed Say on Pay in 2014 compared to 27 companies (1.5%) at the same point last year. In 2013, a total of 78 Russell 3000 companies failed Say on Pay.
Average support so far is 90.8%, with 73.6% of companies receiving greater than 90% support.
The charts below plot Say on Pay results by annual meeting date across 2013 and 2014 (year to date).
So far, 1,529 Russell 3000 companies have reported Say on Pay voting results in 2014.
2014 saw fewer failed Say on Pay votes in the first quarter, but the overall percentage of companies failing Say on Pay is consistent with past years.
From the Russell 3000 companies that have filed so far, we can see the trends in Say on Pay from a different angle – the change in support levels from 2013 to 2014, broken down by companies’ 2013 voting approval levels. At one end, companies that received less than 50% voting approval in 2013 gained an average of 28.0% shareholder support in 2014 – enough for many of them to cross the threshold into passing territory. The higher the 2013 approval rate, the less support increased on average in 2014. For the companies that received 90% or greater approval in 2013, we see a negative trend – average support decreased by 2.6%. Overall, the graph below depicts the shifting sands of Say on Pay approval.
Shareholder Proposals in the S&P 1500
There have been a total of 429 proposals submitted by shareholders at S&P 1500 companies so far in 2014. Of these, the vast majority were submitted at S&P 500 companies, showing that shareholders submitting these proposals continue to focus their efforts on large-cap companies.
By this date last year, more proposals had been submitted at companies in each index than the 2014 year-to-date totals (382 for S&P 500, 54 for mid-cap, and 18 for small-cap).
The number of shareholder proposals around social and environmental issues has increased so far in 2014, constituting 41.7% of all shareholder proposals submitted (up from 36.6% in 2013). Conversely, proposals concerning board management (such as majority voting standards and board declassification) and general shareholder rights (such as proxy access, the ability to act by written consent, and the ability to call a special meeting) are down.
Below are examples of proposal types that fall into each of the four general categories above.
Social and Environmental Issues: Political contributions and lobbying, environmental issues, corporate social responsibility, sustainability, human rights, and animal rights.
Compensation: Accelerated vesting and holding requirements for executives.
General Shareholder Rights: Shareholder ability to act by written consent, shareholder ability to call special meetings, antitakeover statutes, and changes in voting power.
Board Management: Declassification of the board of directors, majority vote standards, and separation of CEO/chair roles.
Among proposals submitted by shareholders, those concerning board management initiatives have received some of the highest support. Nearly half of the proposals in this category concerned establishing an independent chairman or a split of the chairman and CEO roles. In addition, proposals calling for a simple majority voting standard and a restructuring of classified boards into a single class of shareholders were common.
Proposals calling for declassification of the board received the most support of all board management proposals, with 45.5% passing and an average support level of 88.9%.
Independent chairman proposals received far less support, with only two passing and an average support level of 54.9%.
Please contact Dan Marcec at email@example.com for more information. Dan Marcec is the Director of Content & Marketing Communications at Equilar. The contributing authors of this article are Chris McGoldrick, Associate Content Manager, and Alice Avery, Research Analyst.