We use cookies to collect information about how our website is used and to improve the visitor experience. You can change your browser’s cookie settings at any time. Please review our privacy policy for more information. OK
One in 10 respondents to Agenda’s fourth-quarter Directors’ and Officers’ Outlook Survey says their board is considering a shift from annual to triennial say-on-pay voting. Shareholders will have an opportunity to weigh in on say-on-pay frequency during the 2017 proxy season.
The vast majority (93.3%) of boards in the S&P 500 hold annual votes, according to data from ISS. While shareholders and proxy advisors tend to prefer annual voting, some experts believe annual votes force boards to focus too closely on the short term.
For example, Deborah Lifshey, managing director at compensation consulting firm Pearl Meyer, encourages boards to closely examine the governance implications of holding the say-on-pay vote annually. While initially an annual say-on-pay vote enabled investors to weed out “egregious” pay practices such as tax gross-ups, now it has shareholders training their sights more closely on stock price—perhaps too closely, Lifshey says.
“Does it have the perverse impact of having companies kind of twist and change their story every year?” she asks. According to Lifshey, annual say-on-pay votes pressure boards to produce annual stock price growth from long-term performance plans—which, by their definition, the plans are not designed to do.
“Despite what proxy advisors say, say-on-pay is really a referendum on stock price. As a general matter, if the stock price is up, most shareholders will vote in favor of things on the ballot, regardless of pay programs,” Lifshey says. “If share price is down, that’s when they start looking at the proxy advisor recommendation. An ‘against’ say-on-pay vote is not a vote against pay, it’s against another thing that shareholders are discontented with.”