May 26, 2021

2021 Say on Pay Update: Shareholders Tighten the Reins

Executive Summary

  • As the 2021 proxy season unfolds, companies are disclosing adjustments made (or not made) to compensation plans due to COVID
  • For companies in the S&P 500, SOP results are lower than in 2020
  • To date, 25 companies have received less than 75% support as opposed to 16 last year
  • Despite a larger number of companies getting less than 75% support, the variance is not enough to declare with statistical certainty that there is a difference in the overall distribution of votes


Proxy season 2021 has arrived with the typical flood of disclosures and “March Madness”- like surprises. This year, however, the systemic global breakdown caused by COVID 19 and the lack of preparation for any pandemic has taken its toll on businesses and their employees, customers, and communities.

In response to COVID, 116 companies in the S&P 500 have announced changes to their compensation plans, which may include adjusting financial results, eliminating short term incentive plans altogether or awarding special grants to focus (or reward?) executives for navigating their companies through the labyrinth of 2021. This Farient Brief provides insights into how corporations are addressing pay in a pre and post pandemic world. For a comprehensive list of compensation plan changes, visit the Farient COVID-19 Tracker for plan changes in Russell 3000 companies.

According to Farient partner, Dayna Harris, “Against the backdrop of financial performance, economic disruption, and employee layoffs and/or furloughs, it is interesting to see if investors are giving boards a pass or holding their feet to the proverbial fire. As more companies file their proxies, it looks like 2021 is shaping up to be dynamic within the context of say on pay votes. This year investors are making their voices heard on pay. It will be of interest next year to see if they follow through on their statements to focus on director votes.”

Shareholders Tighten the Reins on CEO Pay

Focusing on the 235 companies in the S&P 500 that have reported votes in both 2020 and 2021, SOP results to date have shifted downwards. Twenty-five companies have received less than 75% support from their shareholders versus only 16 last year. Examples for companies that are seeing less than stellar support include Amerisource Bergen (ABC), IBM (IBM), General Electric (GE), Johnson & Johnson (JNJ), Starbucks (SBUX), and Walgreens Boot Alliance (WBA).

That said, it appears that each of the above-referenced companies has been called out for questionable pay practices and/or for COVID-related pay changes:

  • Amerisource Bergen (52% FOR) and Johnson & Johnson (57% FOR): Both pharma companies have potential liabilities due to the opioid crisis, and Johnson & Johnson announced in 2020 that it had agreed to pay approximately $100 million to settle more than a thousand lawsuits after asbestos-contaminated talc was found in their baby powder product. As to say on pay votes, in AmerisourceBergen’s case, short-term incentives (STI) paid out at 127% of target, with the STI plan specifically excluding the impact of any legal settlements. As a result, AmerisourceBergen’s recent $6.6 billion settlement charge did not appear to be considered for the STI payout. Johnson & Johnson did not make any upward adjustments for determining the payouts for its STI and 2018-2020 performance share units, both of which experienced a negative impact from their COVID pay. Given that Johnson & Johnson’s one – year TSR was +11%, the low say on pay may have been driven by the liabilities.
  • General Electric (42% FOR): GE’s STI would have paid out 0% of target based on goals that were set pre-COVID; the Compensation Committee adjusted payouts to 60% to 80% of target, although CEO Larry Culp voluntarily forfeited his STI. GE also granted an additional four-year performance stock unit “leadership” award to the CEO with a target value of $57MM. Three other NEOs got “leadership awards (one performance stock units, the other two restricted stock units). GE’s one-year TSR was -2.5% compared to +19% and +11 % TSR for the S&P 500 and S&P Industrial indices, respectively.
  • IBM (49% FOR): Big Blue’s share price has been underperforming for years with annualized returns over the last five years of 2.6% while the S&P 500 returned 12.9% over the same period, while annual STI plans routinely paid out at 70% – 100% of target. In addition, investors expressed concerns about two 2020 retention grants totaling $21MM issued to an NEO who joined the Company via an acquisition.
  • Starbucks (47% FOR): The specialty coffee brewer awarded its executive team, including CEO Kevin Johnson, a total STI of 60% of target when the financial goals were not met. This came about through the Compensation Committee’s assessment of the 30% of target individual portion of the STI at a 200% performance level. Further, the CEO also received a special three-year performance cash award with a target value of $25MM on top of his regular long-term incentives, following a special $5MM performance-vesting stock option award the prior year. Starbuck’s one-year TSR was -2.6% compared to +15% and +29% for the S&P 500 [1] and S&P Consumer Discretionary indices, respectively.
  • Walgreens Boot Alliance (48% FOR): WBA adjusted its 2020 STI awards from a 0% payout to 84% payout, removing the impact of COVID, and adjusted the vesting for the 2018-2020 performance shares from 0% to 101.7% of target (the pre-COVID performance level). The Company also provide additional restricted stock unit awards for its “Transformational Cost Management Program” to the CFO and two Co-COOs. WBA’s one-year TSR was -23% as compared to 20% for the S&P 500 as a whole over WBA’s fiscal year ending on August 31, 2020.

Not surprising given the results, proxy advisors Institutional Shareholder Services and Glass Lewis recommended voting against all company compensation programs highlighted above.

Low Votes go Lower, Volatility Results Remain Steady

As mentioned, more companies have received less than 75% support in 2021 than did in 2020. However, if the “bottom 10%” of the voting distribution is ignored, then there is not a great deal of difference between 2020 and 2021 results. As the graphic highlights, once the bottom 10% has been accounted for, the distributions of the votes are nearly indistinguishable. In fact, testing 10,000 randomly selected samples from these two years of data, we cannot assume a statistically significant difference in the distribution of the votes from the last two years.

We also looked at the volatility of SOP support (company by company year-over-year change). We found the exact same percentage of companies, 34%, with greater than a +/-5% change in SOP results between the 2021 and 2020 votes as compared to the 2020 and 2019 votes (see below). Given that, there does not appear to be a difference in the year over year change in votes.


In addition to the challenges presented by COVID-19, directors should consider managing trends that may be accelerating due to the pandemic. For example, Farient recommends that directors consider the following when evaluating their pay programs:

  • Shareholders are voting against executive pay packages at a higher rate than in previous years
  • Companies are receiving these lower votes through practices that may not have received shareholder scrutiny in the past

Farient recommends that companies use their proxies to clearly communicate compensation decisions. We also encourage boards to continue proactive engagement with shareholders to explain their compensation decisions. At the end of the day good disclosure never goes out of style.

[1] Starbuck’s fiscal year end was September 30, 2020; therefore, the one-year S&P 500 TSR result cited here is different from the results reported for the other companies with a December 31, 2020 fiscal year end.