This season, many more companies have adopted advisory “Say on Pay” votes, either voluntarily or through government mandate. However the voting results have been puzzling – showing “support” for pay packages at even the worst companies in terms of executive compensation. We believe with more understanding of compensation disclosures, along with the removal of the influence of broker votes, voting results will more realistically reflect the adequacy of the pay packages in question. Below are some examples of the activity on this front and descriptions of some tools that can help you decipher how to vote on pay at companies allowing your say.
As noted previously in our blog, several companies with poor performance and/or pay schemes have received high levels of shareholder support this season (Verizon, Goldman Sachs, Citigroup, Motorola). Despite the fact that the vote percentages are somewhat skewed in favor of management due to broker votes, the results might also be due to some degree of misinformation or misunderstanding. With NO companies having lost a say on pay vote and most receiving 60 to 98 percent support despite many packages still exhibiting egregious levels or terms of executives’ compensation, clearly something is amiss.
It seems investors may just need more actionable information – compensation packages are not the easiest things to understand, especially the way they are disclosed in a proxy. Often the details are hidden – in lengthy descriptions, in footnotes, or in the jargon and intricacies involved in understanding how market movement, timing of grants or manipulation of targets can severely overshadow other acceptable components in the package.
We have developed an easier way to find out what is wrong (and sometimes right) with a pay package at a company soliciting your approval: tools that lay out complex and hidden compensation information in plain English and tabulated figures. In our Board Analyst® interface we display a profile for every company which includes a full section devoted to a CEO’s real levels of compensation (we do the math and calculate what we call “Total Realized Compensation,” which usually differs widely from companies’ reported figures of total compensation levels as we are more interested in actual compensation than expensed amounts). We also display figures culled from proxy tables that show the breakdown of pay components, awards to other Named Executives, and calculate useful percentages such as the percentage of pay that is performance-based. We even supply lists of compensation-related events and list the names, and linked profiles, of compensation committee members – all of this pulled painstakingly from various filings and displayed in one spot.
We also give an analyst viewpoint on the full pay package as well as a Compensation rating that distills the data even further. Peer group composition, perks, recent changes to policy and other more intricate details are included in analyst comments.
Last year only two companies voluntarily adopted the Say on Pay proposal (Aflac and RiskMetrics); this year has seen hundreds more include the management proposal on their proxies (many due to their identity as TARP recipients, such as at American Express; some due to the majority support of previous shareholder proposals asking that it be implemented, such as at Intel). Given continued support for shareholder proposals (such as at Apple and Prudential) as well as the current political environment and potential for wider-reaching federal mandates, there may be many more companies asking for shareholders’ “say.”
Fortunately there are tools available to help shareholders cast their vote in an informed manner that will help bring accountability back to a system that badly needs it. For more information about Board Analyst, request a free trial.
Michelle Lamb — Research Associate
