In our webcast next month, “Action Items to Prepare for 2014 Proxy Season,” my partner Erik Lundgren and I will discuss the resurgent interest in shareholder proposals regarding executive compensation – and the likelihood that the surge will continue in the upcoming proxy season. (See, also, ISS Governance Weekly, June 28, “Shareholder Proposals Regain Spotlight” and Towers Perrin Newsletter “Are Compensation-Related Shareholder Proposals Primed for a Comeback?”)
Shareholder proposals regarding executive compensation decreased in 2011, as shareholders and their advisors gained the right to vote “FOR” or “AGAINST” companies’ shareholder say on pay resolutions. However, the extremely high success rate of companies’ say on pay resolutions and the lack of response by some companies that failed to achieve a majority vote in favor of their say on pay resolutions seem to have led shareholders and their advisors back to shareholder proposals. To date, there have been more than 100 shareholder proposals regarding executive compensation in 2013, up from 61 in 2012, and only 39 in 2011.
The most common shareholder proposals in 2013 have been requests for
- Adoption of a stock retention policy,
- Adoption (or improvement) of a compensation clawback policy, and
- Pro-rata vesting of equity awards, rather than acceleration, upon a change in control.
Only one of the many shareholder proposals on executive compensation matters succeeded in garnishing a majority vote. Quite a few were withdrawn. However, some proposals were withdrawn only after the targeted company agreed to make changes.
So how does a company prepare for the possibility of receiving a shareholder proposal on executive compensation? The strategy for avoiding a shareholder proposal is much like the strategy of achieving a majority vote in favor of Say on Pay. The Compensation Committee should review the areas where its compensation policies and practices differ substantially from those demanded by shareholders and their advisors (i.e., ISS). That doesn’t mean the company or Committee must adopt any of the policies and features the “shareholders” want (or eliminated those they don’t want), but the Committee may find one or two it could live with and it also then will be prepared to discuss the “whys” and “why not’s” if shareholders do file a proposal.