By Amy Muecke
In an 8-K filed on Thursday, Stanley Black & Decker became the sixth company to report that its say-on-pay proposal failed. Stanley Black & Decker follows Ameron International, Shuffle Master, Hewlett-Packard, Jacobs Engineering Group and Beazer Homes as the other five companies that have so far reported failed say-on-pay votes. Arguably, Hemispherx Biopharma also failed to get majority support for its say-on-pay proposal based on how it disclosed in its proxy that it would count the votes, yet it disclosed last month that its say-on-pay proposal passed.
Stanley Black & Decker's proxy states that its say-on-pay proposal would be approved if the number of votes cast in favor of the proposal exceeded the number of votes cast against the proposal. In its 8-K filed reporting the annual meeting results, Stanley Black & Decker reported 131,163,672 shares cast for and against the proposal, with 51,265,057 shares (39%) voted FOR the proposal and 79,898,615 shares (61%) voted AGAINST the proposal. This is the lowest level of support for any of the failed say-on-pay proposals to date.
According to Yahoo!Finance, Stanley Black & Decker has ~82% institutional ownership and it appears that the ISS vote recommendation probably influenced a significant portion of the company's stockholders. ISS recommended voting against the say-on-pay proposal (as well as all other proposals, including election of directors, except for ratification of the auditors). The negative vote recommendation was based on the "failure to address low voting support for compensation committee members and high executive pay packages relative to performance".
ISS recommended withholding votes from compensation committee members last year primarily because of the employment agreement that the company entered into at the time of the merger between The Stanley Works and The Black & Decker Corporation with its executive chairman providing for three years of guaranteed equity awards. Other issues that ISS cited as justification for the recommendation to vote against the say-on-pay proposal included:
- Low support for two compensation committee members last year who remain on the board and compensation committee (Breen received 57.7%; Colbert received 46.4% – the company has a plurality vote standard).
- The same performance metric under both its long-term and short-term incentive programs (noting that using common metrics for both short-term and long-term incentive programs can provide duplicative payments).
- CEO pay exceeding more than three times the median of CEOs at the ISS-selected peer group of companies in "a similar industry and appropriate size range."
- Other shareholder unfriendly practices, such as excise tax gross-ups (though not entered into or materially amended last year), modest stock ownership guidelines, and no long-term equity holding requirements.
- Positive shareholder returns, both absolutely and relative to the company's GICS and index peers, but skepticism about outsized time-based awards and pay guarantees that "indicate they are overpaying executives for this performance."