A Deep Dive on This Year’s Say on Pay Results

July 13, 2018

It’s hard to believe, but the eighth year of Say on Pay has come and gone. Despite legislative threats to other provisions of the Dodd-Frank Act, it appears that the areas concerning executive pay are safe for now. In this Farient Brief, we’ll look at Say on Pay results and dive a little deeper to better understand investor focus for 2018.

More Say on Pay Failures

Most surprising from this year’s results, more Russell 3000 companies failed their vote than in any previous year. With almost 1,900 companies reporting Say on Pay votes, 51 companies failed to garner majority support. Big brands topping the “first-timers” list include Walt Disney, Mattel, and Mondelez, as well as perennial failers like Nabors Industries and Tutor Perini. Tutor Perini has earned the dubious distinction of being the only company in the Russell 3000 that has failed to obtain majority support for any of their Say on Pay proposals.

The eighth year of Say on Pay has certainly given us some surprises. With marquis companies like Disney, Mattel, and Mondelez failing their votes, and a select group of companies giving lip service to investor concerns, investors showed their concern by just voting “NO.” Going forward, we will see more directors held to a higher standard of accountability and lose their board seats, which is something my colleagues and I at Farient had predicted since the onset of Dodd-Frank in 2011. – Marc Hodak, Farient Advisors, Partner

As in years past, some companies have significantly improved their year-over-year results, while others have seen steep declines in support. Conoco Phillips managed to go from failing their vote in 2017 to 92% support in 2018. They “undertook an extensive [shareholder] engagement effort” and articulated how they embarked on “a thorough review of [their] compensation programs.” Conversely, 15 companies went from having support greater than 90% to failing their vote. This group includes the aforementioned Mattel and Zoe’s Kitchen.

Trajectory of Year over Year Say on Pay Votes

[sc name=”Trajectory of Year Over Year Say on Pay Votes” ]

2018 Say on Pay results varied significantly from sector to sector. Utilities saw the greatest percentage of companies receiving at least 90% support with none failing. Conversely, the telecom sector saw the greatest number of failures. Smaller than the rest of the sectors, with only 15 companies reporting, telecom still had two companies fail and six others fail to obtain 90% support.

Voting Results by Sector

[sc name=”Voting Results by Sector”]

Based on Farient’s review of voting rationales, companies are typically called out by investors for three things.

  1. Lack of responsiveness to investor concerns voiced in previous years – In the telecom sector, for example, Cogent Communications received a NO vote after failing to address pay concerns raised during the 2017 proxy season. Board members beware as investors have started to take out their frustration on individual directors, supporting their candidacies at only a 60% rate. Boingo Wireless also failed their vote and, in limited feedback, investors highlighted lack of responsiveness to previous concerns. At this juncture, Boingo Wireless investors have yet to vote against individual directors.
  2. Rejecting the use of [excessive] one-time awards – Let’s be clear, investors are not fans of one-time awards. Case in point, CenturyLink, while not failing their vote, received only 79% support from investors who cited excessive sign-on bonuses for new executives and the vesting of awards at below median company performance.
  3. Disconnect between pay and performance  This continues to be the most referenced rationale investors use for withholding support for pay programs (and has been since the onset of Dodd-Frank in 2011)

Clearly, proxy season 2018 is keeping investors vigilant regarding executive pay issues. They are calling out specific companies for actions or programs that violate investor policies or more general philosophy on Say on Pay. With nearly 700 Russell 3000 companies left to report Say on Pay votes in 2018, the Farient team will continue to monitor and share results as they are reported and provide updates as developments occur.

Visit Farient’s Say on Pay Tracker™ for a year-over-year look at Say on Pay across the Russell 3000.

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