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Failing a say-on-pay vote is relatively rare. However, if a company does receive a failed say-on-pay vote there are three main areas boards will focus on, according to Terry Newth, Managing Director at Pearl Meyer & Partners. Those are: shareholder engagement, proxy advisory engagement and identifying program changes.
“The engagement piece, both with the proxy advisors and the shareholders, is an important aspect because the whole concept of say on pay is a blunt instrument, and companies don’t necessarily understand why their programs didn’t receive support,” Newth says. “Boards would identify any concerns shareholders or proxy advisors have with their pay programs, and then discuss those as a committee, or perhaps broader than that, and understand whether those are compelling enough to make changes to the program.”
After such changes have been made, the company usually revamps its disclosure to ensure that shareholders understand how the board addressed the concerns. Sharon Podstupka, Principal at Pearl Meyer, says there usually is a recognition that something has to change in how the story is told.
“As we have seen the narrative evolve, especially with those that have a challenging vote result, the expectation from proxy advisors and the institutional investors is that it is easy to find and clear to understand what the outreach efforts look like, and how companies are responding to feedback. It is not about what they heard and how they responded to changes, but what they heard and if they didn’t make changes, the rationale for why,” Podstupka says.