In any given year, the vast majority of companies receive overwhelming shareholder support for their say-on-pay (SOP) proposals; however, the clear takeaway from a recent Pearl Meyer survey of 10 years of SOP data is that most companies should expect to receive an “against” vote recommendation from a proxy advisory firm at least once.
The study examined how many Russell 3000 companies have received, at some point since SOP first entered corporate America in 2009, either an “against” vote recommendation from a proxy advisor or low shareholder support (defined as less than 85 percent) for one or more SOP proposals. The results are striking: more than 40 percent of Russell 3000 companies have received an “against” vote recommendation from leading proxy advisor Institutional Shareholder Services and almost half have received low shareholder support. Graphical data presented in the study also shows a clear upward trend over time, leading the study’s authors to conclude that, “It is reasonable to expect that at some point in the future, more than 80 percent of companies will have fallen victim to a negative vote recommendation at least once.”
To counterbalance the risk of negative vote recommendations from proxy advisors, the study’s authors stress the importance of shareholder outreach and engagement, offering the following key steps as a baseline:
- Define the scope of the outreach.
- Define the outreach team and their associated roles.
- Understand your stockholder voting guidelines before engaging with them.
- Develop materials to serve as a conversation starter.
- Disclose your outreach and engagement efforts.