Pushback on Executive Pay: Stakeholders Taking a Stand

According to a May 24 Reuters article, stakeholders are speaking out on executive pay, with opposition to U.S. CEO pay at its highest ever.

Each year, Institutional Shareholder Services Inc. (ISS), the parent company of ISS Media, provides proxy voting recommendations to investors on millions of ballot items considered in annual shareholder meetings. Based on analysis from ISS Corporate Solutions, “investors have rejected a record number of executive compensation plans in non-binding votes of U.S.-listed companies this year.”

• Fourteen S&P 5000 companies saw more than 50% of stakeholders reject executive pay proposals, so far in 2021, exceeding the twelve rejections for the same selection of S&P top companies for all of 2020
• Verticals that have seen the most say-on-pay rejections include real estate, technology, and automobile and auto parts makers

Say-on-Pay

Say-on-pay is a common shareholder ballot item. Shareholder position on say-on-pay proposals produces a non-binding vote result. The opportunity to speak out on the topic of executive compensation, however, is provided by an organization to its stakeholders to allow voicing of opinion, supporting or opposing the organization’s decisions on executive pay over the past year.

One of the strongest criticisms of say-on-pay as a practice is that soliciting the opinions of shareholders regarding executive pay can lead to decisions made to appease shareholders collectively. In contrast, decisions based on the best interests of the company, including a need to retain and reward critical key talent, theoretically should always yield the optimal outcome for shareholders.

Say-on-Pay as a Motivator for Reevaluation

Although say-on-pay is applicable to public companies only and does not produce a mandatory binding result, discussions of plan design, long term and near term strategies, and corporate objectives are extremely worthwhile for any company designing a nonqualified deferred compensation (NQDC) plan or updating its NQDC plan. Privately held organizations can also examine whether their executives’ deferred comp agreements play a valid role in key executive talent retention and advancing the goals of the organization.

#ReadMore Foregone Compensation: Reporting Requirements for Waived Executive Comp

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