Volume 1/Issue 13–Week Ending January 7, 2011 laurelhill.com
Say on Pay – Are We Ready Yet? Answer: Maybe
Earlier this week, Towers Watson, the global compensation consulting firm, released results from a poll of 135 U.S. companies. As we understand it, the survey asked companies about their expectations (post-shareholder vote) and the plans they have (or may consider) establishing to manage the results of their Say-on-Pay votes. It should also be kept in mind that respondents, in answering the survey’s questions did not necessarily express their board’s opinion regarding vote frequency. The conclusions provide some insight into the thinking of governance and investor relations teams and how they believe the world may appear after the smoke clears post the annual meeting season.
The Expectations Game
The Towers Watson survey respondent companies believe the following with respect to Say-on-Pay votes:
- 51% expect to hold an annual vote
- 39% have a preference for a triennial vote
- 4 in 10 Respondents referred to accountability to shareholders and the need to limit the administrative work load of Say-on-Pay as the primary driver behind their frequency selection
- A somewhat smaller number held shareholder preference, the policies of the proxy advisory services and the prospect of reducing negative shareholder votes against the compensation committee and other pay-related issues, as the basis of their rationale.
- 48% of companies surveyed have made or are making adjustments to their process for setting executive compensation
- Of those companies, 65% are focusing more attention on the role of the Compensation Discussion & Analysis (CD&A)
- Another 30% have or may consider changes to their severance, change-in-control and executive perquisites’ programs
Recognizing a Successful SOP Vote
A fairly large number, 48% of respondent companies, have not determined how they will measure the success of their Say-on-Pay vote; while a small minority, 8% have established a process for the analysis and interpretation of the votes and the corollary responses to shareholders. The 50% plus of companies surveyed on the question believe a vote of 80% or more in favor of their pay plan as a positive.
James Kroll, senior consultant at Towers Watson, pointed out, “This new era will require companies to step up their ongoing communication with shareholders and tell a compelling story about how their pay programs help drive business performance, while also listening and responding to shareholder concerns. This is not a one-shot deal. It will be a continuous process”
Next Steps
In approaching Say-on-Pay, companies need to keep in mind that their actions should be guided less by what the proxy advisory services recommend, but by what they desire to communicate to their shareholders and the quality of that communication.
The identification of their shareholder base, determinations as the level of proxy advisor influence on that base, the clarity of their CD&A and the strength and experience of the board, especially the compensation committee, is likely to weigh more on shareholders’ decision-making. IT’S ALL IN THE PLANNING.
About The Laurel Hill Advisory Group
The Laurel Hill Advisory Group is the only independent provider of Shareholder Communication and Corporate Governance Advisory services in North America. Our team of knowledgeable and experienced professionals gives our clients access to first rate cross border capabilities that specialize in Annual Meeting Solicitation, Information Agent services, Mergers and Acquisitions, Corporate Actions, Special Meeting Solicitation and Shareholder Asset Recovery Programs. We also afford our clients with the most comprehensive Corporate Governance and Risk Assessment Consulting available anywhere.
visit www.laurelhill.com or Francis Byrd at fbyrd@laurelhill.com
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