As promised, today I give five more reasons (in addition to avoiding a lawsuit, which I discussed on Monday) why preparing for SSOP is just as critical in 2012 as it was it 2011 and, despite the fact that the vast majority of companies received a significant majority vote “For” their Shareholder Say on Pay (SSOP) resolutions in 2011, we need to again focus on SSOP for the 2012 proxy season.

  1. The SEC only published its final rules on SSOP in January 2011. Investors and their advisors had limited time to make decisions on how to vote with respect to SSOP resolutions in the 2011 proxy season, let alone develop an approach for making decisions on the issue or adopt a strategic approach to casting votes. ISS and other shareholder advisers had to scramble to respond to the literally thousands of SSOP resolutions up for vote for the first time in 2011. Government and union pension fund investors did not fully mobilize in 2011. Investors and their advisors have had much more time to plan for 2012.
  2. A collateral effect of losing the SSOP vote – or only narrowly winning the vote – is that directors who are members of the Compensation Committee are likely to receive substantially more “Withhold” votes than others directors in future elections. This is not only embarrassing for the directors, it may make it harder for the Company to recruit and retain directors willing to serve on the Compensation Committee in the future. For example, after the Sarbanes-Oxley Act of 2002 imposed significant new responsibilities and potential liabilities on members of the Audit Committee, we began to see directors (i) express reluctance to serve on, and (ii) ask to “cycle off,” the Audit Committee. Companies will find it more difficult to recruit new board members to serve on the Compensation Committee if the potential directors know that they will be subject to greater scrutiny by outsiders and that the Company does not have an explicit strategy for maximizing the likelihood of (i) their future retention as directors, and (ii) achieving a favorable vote in SSOP.
  3. ISS recently sent a questionnaire to its clients and the public asking: At what level of opposition on a say on pay proposal should there be an explicit response from the board regarding improvements to pay practices? No one thinks that a 51% vote in favor of a company’s SSOP resolution is sufficient (i.e., 49% opposition). However, it is likely that the position of ISS and other shareholder advisors will be that only an approval percentage substantially above 51% is sufficient to allow a company to continue the same policies and practices without change.
  4. Those companies whose shareholders approved a biennial or triennial SSOP vote may think that the heat is off for this year. However, that it is not necessarily true. The reason is that, with no SSOP resolution to vote on, if ISS or other shareholders or shareholder advisors feel the need to complain about the company’s performance or compensation package for any reason, their only alternative is to do so by voting against – actually withholding votes – from directors, particularly directors on the compensation committee. Therefore, the individual compensation committee members may bear the brunt of ISS and other investor scrutiny in “off” years. We suggest that these companies still make the effort to be proactive and “sell” their compensation policies and package in the proxy statement.
  5. It is still embarrassing to receive a majority vote “Against” the SSOP resolution – or to win the SSOP vote by only a narrow margin. 

September 15, is celebrated as Battle of Britain Day in the United Kingdom, commemorating the day in 1940 that, after a series of decisive Royal Air Force (RAF) victories, Germany largely gave up its attacks and the Battle of Britain was won (leading Winston Churchill to say: “Never in the field of human conflict was so much owed by so many to so few”). The Battle of Britain was fought entirely by air forces. The Luftwaffe aerial bombing campaign began in July 1940, and progressed from coastal shipping convoys, to RAF airfields and infrastructure, to aircraft factories and ground infrastructure, and, eventually population centers such as London.