14 Jul. 2011 | Comments (0)
- In light of the difficulties companies encountered this year in engaging shareholders, companies should identify and reach out to their major shareholders much earlier.
- Some companies whose 2011 bonus, equity, and other compensation grants were already determined before their 2011 say on pay votes may find it impossible to avoid a negative proxy advisory firm vote next year, especially if their 2011 total shareholder returns are below that of their peers.
- Pay-for-performance issues will be even more important next proxy season, especially if the SEC adopts rules under the Dodd-Frank Act to require U.S. public companies to disclose annually the relationship between executive compensation and the company’s financial performance.
“The primary driver of these failed votes appears to be pay-for-performance concerns, which were identified at 27 of these  companies [as of last year]. Investors appear to have voted their pocketbooks this season. Almost half all of the failed-vote firms have reported double-digit negative three-year total share returns. Also contributing to investor dissent were such issues as tax gross-ups, discretionary bonuses, inappropriate peer benchmarking, excessive pay, and failure to address significant opposition to compensation committee members in the past.”Meanwhile, in a BoardVision Webcast hosted by the National Association of Corporate Directors (NACD) on July 8, Scott Olsen, the PwC U.S. Human Resources leader, told NACD’s Peter Gleason he has seen an uptick in the amount of shareholder engagement by companies. He said: “Well, in our work with compensation committees, we have observed directors making changes to compensation plans in the following ways:
- Creating plans that are more closely aligned with overall performance including sustainability. One approach in this vein is to place less emphasis on ‘formulaic’ plans and increase the use of non-financial measures.
- Lengthening of time horizons. More compensation is being deferred, and more companies are establishing performance conditions on long-term incentive grants.
- Being more cautious about severance provisions in new compensation agreements, and eliminating tax gross-ups and single-trigger change in control benefits.
- Eliminating or phasing out other executive benefits, like SERPs and perquisites.”