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PM&P Survey Suggests Few Companies Preparing for Say on Pay

SOUTHBOROUGH, MA, October 20, 2009 — Even as momentum continues to build to require a shareholder vote on executive pay at all publicly-listed firms, few companies have taken steps to prepare for Say on Pay or plan to do so in the next six months, according to a new survey by independent compensation consultancy Pearl Meyer & Partners released today at the National Association of Corporate Directors Corporate Governance Conference.

This past summer, the U.S. House of Representatives approved the Corporate and Financial Institution Compensation Fairness Act of 2009, which would require an annual, non-binding advisor shareholder vote on pay. Most observers expect the U.S. Senate to also approve the legislation.

Yet just 7% of the 231 survey participants in Pearl Meyer & Partners' online Say on Pay Survey said their company is "very concerned" about such a vote, and another 35% indicated they were only "somewhat" concerned. Moreover, more than two-thirds (66%) said their company hasn't taken any steps to prepare for a Say on Pay vote and only 35% plan to do so in the next six months. Survey respondents were mostly compensation committee members, top human resources professionals, and members of the compensation group.

"Public companies are surprisingly reticent to address the very real likelihood of mandatory Say on Pay votes," said Mike Enos, Ph.D., Managing Director of Pearl Meyer & Partners. "Although many believe such a requirement will not take effect the until 2011 proxy season, decisions being made now regarding 2010 compensation practices could potentially be the subject of Say on Pay votes in 2011."

Three-quarters of respondents predicted shareholders would approve a Say on Pay vote if it was held. "However, our experience with TARP clients suggests that proxy advisor groups have and will continue to recommend 'no' votes for some companies," Enos said. "The first shareholder vote against pay is more likely a question of 'when,' not 'if.'"

Companies that have begun preparing for Say on Pay are most focused on steps that are easily achievable or are already part of their annual compensation review. Such common activities included:

• Reviewing proxy compensation disclosure and analysis (CD&A) and related tables to ensure executive compensation disclosure is clear, complete and not subject to misinterpretation (82%)
• Keeping abreast of the results of Say on Pay proposals at other companies (81%)
• Reviewing market benchmarking practices, particularly with respect to selection of appropriate peer groups (69%)
• Conducting analyses to ensure a strong link between executive pay and performance (62%)
• Identifying any perceived poor pay practices in their executive compensation philosophy and program design (57%)

On the other hand, only 35% of respondents who indicated they were actively preparing for Say on Pay said they inquired into their institutional shareholders' general views on Say on Pay or whether those investors are likely to follow the recommendations of proxy advisory firms. Additionally, about one-third (30%) of all respondents said they were unfamiliar with the overall voting guidelines of proxy advisory groups. "By failing to anticipate the attitudes and policies of institutional shareholders and proxy advisory firms, companies risk being blind-sided at the last moment," Enos said.

The quality of shareholder communications also has received little attention. Only 22% of respondents who indicated their company has taken steps to prepare for Say on Pay reported having in place an effective shareholder communications strategy, which would include a process for gathering feedback from institutional shareholders, unions and/or other constituencies on executive compensation programs.

Pearl Meyer & Partners' Say on Pay Survey took place in July and August 2009 and examined views on advisory shareholder votes across a broad range of industries and organization sizes. A total of 231 respondents participated in the survey, mainly compensation committee members, top human resources professionals, and members of the compensation group.

The full survey is available at www.pearlmeyer.com/sop.

About Pearl Meyer & Partners

For over 20 years, Pearl Meyer & Partners (www.pearlmeyer.com) has served as a trusted independent advisor to Boards and their senior management in the areas of compensation governance, strategy and program design. The firm provides comprehensive solutions to complex compensation challenges for companies ranging from the Fortune 500 to not-for-profits as well as emerging high-growth companies.These organizations rely on Pearl Meyer & Partners to develop programs that align rewards with long-term business goals to create value for all stakeholders: shareholders, executives, and employees. The firm maintains offices in New York, Atlanta, Boston, Charlotte, Chicago, Houston, Los Angeles and San Jose.