Frequency of Say on Pay: The Statistics & Beyond

News Brief

By Amy Muecke


Frequency Recommendations

Here are the latest statistics prepared by Mark Borges of regarding the recommendations in the 291 proxies for annual meetings with frequency of say-on-pay proposals that have been filed as of February 25:

  • Annual: 101 ( ~35%)
  • Biennial: 16 (~5%)
  • Triennial: 159 (~55%)
  • No Recommendation: 15 (~5%)

Are predictions holding true that annual recommendations are catching up and might even take over? Perhaps slowly, but not yet overwhelmingly. Here are the statistics on the recommendations in the 60 proxies filed during the last two weeks (between February 11 and February 25):

  • Annual: 29 ( ~48%)
  • Biennial: 2 (~3%)
  • Triennial: 26 (~43%)
  • No Recommendation: 3 (~5%)

New for this week, here are some industry-specific statistics we obtained using an ISS database:

  • Of 8 companies in the pharmaceuticals & biotechnology industry who have filed proxies, 1 recommended annual votes, 6 recommended triennial votes and 1 made no recommendation
  • Of 20 companies in the healthcare equipment & services industry who have filed proxies, 6 recommended annual votes, 3 recommended biennial votes, 10 recommended triennial votes and 1 made no recommendation <
  • Of 15 companies in the software & services industry who have filed proxies, 5 recommended annual votes, 2 recommended biennial votes and 8 recommended triennial votes
  • Of 24 companies in the technology hardware & equipment industry who have filed proxies, 7 recommended annual votes, 4 recommended biennial votes, 11 recommended triennial votes and 2 made no recommendation

Frequency Results

According to Mr. Borges, to date stockholders at ~48% of the 54 companies that have made triennial recommendations (and disclosed the results from their meetings) have supported annual – not triennial – votes and excluding smaller reporting companies, stockholders at ~56% of the 43 companies that have made triennial recommendations have supported annual votes.


Should the statistics influence your decision about what frequency recommendation to make to your stockholders?

Broc Romanek of recently blogged about the importance of considering voting results when making frequency recommendations and wrote that "the fact that so many companies are ignoring the clear will of shareholders over this minor topic (‘minor' in comparison to [say on pay] itself) will likely further galvanize shareholders to more closely scrutinize pay practices."

It's important to remember, however, that the statistics express the will of stockholders of other companies. Say on pay is about encouraging dialogue between you and your stockholders (and potentially the proxy advisory firms that they follow). Some institutional stockholders have publicly announced an absolute frequency preference for votes at all companies, but many others have simply expressed a default preference unless convinced otherwise. Additionally, not all companies have significant institutional ownership, making the proxy advisory firms' positions and institutional stockholders' general preferences even less relevant to those companies.

If you've engaged with your stockholders before making your frequency recommendation, the feedback you've received should be one of the factors considered when determining the recommendation. If you have not engaged with your stockholders before making your frequency recommendation, then isn't the board's decision following the stockholder vote the true test of whether you're following or ignoring the will of your stockholders?

What should we take from the statistics?

If you have a significant level of institutional ownership, aren't willing to do significant stockholder outreach on this issue (possibly because it's just not a battle worth fighting) and are concerned about potentially negative optics associated with your stockholders supporting a frequency other than what you recommend, you should probably make an annual recommendation.

Stockholders at roughly half of the companies that have recommended triennial votes have supported triennial votes. On the other hand, stockholders at all of the companies that have recommended annual votes have supported annual votes. After analyzing the companies whose stockholders have supported less frequent votes, what stands out is that in almost all cases the company has had a unique ownership structure, such as a very high level of inside ownership, dual class capital structure, etc. – it seems that most frequency votes have so far been determined more by ownership structure than by each company's actual compensation practices or rationale presented for a less frequent vote.

One seemingly notable exception to this generalization appeared this week – Sanderson Farms.

Sanderson Farms is just one result to date, but will more follow? After reviewing Sanderson Farms' major stockholders, it's worth noting that the list includes BlackRock (who is known to support triennial votes) and Royce (who is known to generally follow the recommendations of Glass Lewis, but can be convinced to vote otherwise in certain circumstances). The Sanderson Farms result points back to the suggestion that the frequency recommendation should be a company-specific decision rather than a reaction to what's happening at other companies.

What should influence your decision on what frequency to recommend to stockholders?

1. Your stockholder base. Find out what your stockholders want. Again, absent significant inside ownership and without further effort, expect significant support for annual votes particularly in the absence of significant stockholder outreach if you have a significant institutional stockholder base. Many institutions default to annual votes unless they're convinced otherwise. Convincing them otherwise requires a compelling rationale and significant outreach/communication. Consider whether it's worth the time, effort and expense necessary to fight this battle.

2. What's right for your company? Consider what makes sense for your company based on your executive compensation programs and whether you can present a compelling rationale in support of your recommendation in your proxy statement.

3. How do you feel about the vote results conflicting the with your recommendation? Is the board concerned about negative optics/embarrassment associated with strong support for annual say-on-pay votes despite its triennial recommendation? Alternatively, would the board rather "take credit" for recommending an annual vote if that's what your stockholders are likely to support? Again, as long as the board ultimately decides to adopt the frequency preference expressed by stockholders after the annual meeting, consider whether/how much the board's initial recommendation ultimately matters from an optics or stockholder-relations perspective.

Related Practices & Industries

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