In our webcast last week "A Busy 2013 For Executive Compensation," my partner Erik Lundgren and I discussed the resurgent interest in shareholder proposals regarding executive compensation – and the likelihood that the increase in shareholder proposal 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 seems to have led to a resurgence in the number of shareholder proposals. To date, there have been nearly 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 (i) adoption of a stock retention policy, or (ii) pro-rata vesting of equity awards, rather than acceleration, upon a change in control. Compensation clawback proposals were common among financial institutions. (Shareholder proposals for a mandatory say on pay vote virtually disappeared.) Not one of these proposals succeeded, and quite a few were withdrawn. The proposals with the highest "For" voting percentage were around 45%.
Companies should prepare for the possibility of the increase in shareholder proposals on executive compensation continuing. 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 determine what company shareholders want, whether the company or Committee already has adopted the policies and features they want (or eliminated those they don't want), and consider whether the company or Committee should adopt the policies and features they want.