Pay plan rejections hit record high

Dive Brief:

The total number of public companies in the Russell 3000 Index whose shareholders rejected their firm’s top executive pay policies ticked up to 86 in 2022 from 71 in the year earlier, according to Willis Towers Watson.
The rejections mark the highest number of negative votes since the so-called “say-on-pay” non-binding vote on compensation was made mandatory in 2011, WTW said. The advisory vote requirement was included in the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act and adopted by the Securities and Exchange Commission in 2011.
“In terms of failure it’s a small proportion of the 3,000 but it’s a reminder that investors and shareholders are still remaining vigilant on the topic...and sending messages through low support levels,” Robert Newbury, a WTW senior director, said in an interview.

Dive Insight:

Shareholders are typically more likely to give compensation packages a thumbs down when pay plans include significant year-over-year increases in the 20%-50% range as well as when a company’s performance wanes, Newbury said.

More compensation information is on its way for investors to pore over. For the first time this year, large public companies will be required to disclose additional information about executive compensation under the long-delayed pay-versus-performance rules that were adopted last year by the SEC.

U.S. public companies are now required to include a table within their filings that covers executive compensation and financial performance indicators. The information is expected to make it easier for investors to measure and compare companies’ performance and pay to their peers.

The financial performance measures, which will be included in the table required by the SEC, include companies’ total shareholder return, TSR for the companies’ peer group, and net income, according to the agency.

It’s too soon to tell exactly how that new information will impact say-on-pay votes going forward, but he expects the data will likely be closely scrutinized by shareholders, Newbury said. “Historically, we know the biggest topic far and away when they’re evaluating say-or-pay votes is pay for performance,” he said.