2011 Proxy Season: Conversations with Shareholders
. Naturally, the first session focused on executive compensation. Joining our Directors’ Institute Program Chair Alan Rudnick on June 8 were Arthur H. Kohn, partner at Cleary Gottlieb Steen & Hamilton LLP; Stephen L. Brown, director and associate general counsel for TIAA/CREF; and James F. Reda, founder and managing director of James F. Reda & Associates LLC. To see the archived version of the first Webcast, click here
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The KnowlEdge Series, which is designed for directors, corporate secretaries and heads of investor relations, as well as senior functional and operational executives and their staffs who work with the board on communicating to investors and shareholders, will continue June 15 (Proxy Season Overview) and June 29 (Communicating with Shareholders). Both Webcasts will start at 11 a.m. EST.
“Roughly 90 percent of the 300-plus companies have overcome ‘No’ votes from ISS on Say on Pay so far this season,” Reda said. “As of June 1, 31 companies have had failed Say on Pay votes. In a lot of cases there were really close votes, but there were some landslides. We found that 70-80 percent of those ‘No’ votes were in the construction, real estate, oil and drilling industries.”
Alluding to Reda’s point on certain industries showing a trend of negative compensation advisory votes, Kohn had a theory for some of the “No” votes, other than the popular “follow the proxy advisory firm recommendation” theory.
“I think the ‘No’ votes are more about the [stock market] performance of those companies,” Kohn said. “The thinking is that the stock is not doing well, so something has to be done.”
Brown and Kohn agreed that the combination of the frequency vote and the Say on Pay vote along with the perceived influence of the proxy advisory firms Institutional Shareholder Services (ISS) and Glass Lewis tend to politicize the process.
“The frequency vote surprised a lot of us [investors] in that it would be in the [Dodd-Frank Act] law,” Brown said. “It has become a distraction. We wanted them [companies] to spend more time on the substantive part of the compensation plan [design].”
Kohn is more concerned with the publicity of the negative Say on Pay votes that company’s receive from the media who are more concerned with keeping a scorecard than advocating better shareholder dialogue.
“If we end up with a lot of publicity that relies on surface issues, and have companies gearing up to respond in a public way and we have a political [Say on Pay] election, then the idea of Say on Pay would have been a failure because it wouldn’t have addressed the [serious] compensation issues,” he said.
While Brown was careful not to assail the proxy advisory firms, he did admit they have a bit of an impact on Say on Pay votes but not as much as many people think. He said that while TIAA-CREF ultimately makes it own decisions on such corporate governance related votes, the big institutional investor does depend on the data and information an ISS provides.
Kohn finds that many of his clients just want proxy advisory firms to be more transparent and accessible when it comes to making recommendations on such issues as Say on Pay.
As for next proxy season, Reda predicts CEO pay will skyrocket due to performance aligned to this year, which has been very good for many companies. “We will see double digit increases in 2012 and 2013,” he said.
Kohn is telling his clients to focus on performance alignment and how to communicate it to shareholders.
By now, you’ve probably seen all the figures related to the first year of Say on Pay and Say When on Pay votes for public U.S. companies as mandated under the Dodd-Frank Act. But do you know why investors voted the way they did and what companies should be doing to gear up for the second year, which could include shareholder proxy access?
Well, we at The Conference Board Governance Center got some of those answers earlier this week during the first of a three-part Webcast series called the