Say on Pay & Frequency of Say on Pay: Weekly Update

By Amy Muecke

Frequency Recommendations

Here are the latest statistics prepared by Mark Borges of CompensationStandards.com regarding the recommendations in the 365 proxies for annual meetings with frequency of say-on-pay proposals that have been filed as of March 4, 2011:

• Annual: 147 ( ~40%)
• Biennial: 16 (~4.5%)
• Triennial: 182 (~50%)
• No Recommendation: 20 (~5.5%)

Are predictions holding true that annual recommendations are catching up and might even take over? Last week was a strong one for annual recommendations. Here are the statistics on the recommendations in the 74 proxies filed last week (between February 28 and March 4): 

•  Annual: 46 ( ~62%)
• Biennial: 0
• Triennial: 23 (~31%)
• No Recommendation: 5 (~7%)

Here are updated 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 23 companies in the healthcare equipment & services industry who have filed proxies, 7 recommended annual votes, 3 recommended biennial votes, 11 recommended triennial votes and 2 made no recommendation
• Of 18 companies in the software & services industry who have filed proxies, 7 recommended annual votes, 2 recommended biennial votes and 9 recommended triennial votes
• Of 25 companies in the technology hardware & equipment industry who have filed proxies, 7 recommended annual votes, 4 recommended biennial votes, 12 recommended triennial votes and 2 made no recommendation
• Of 49 companies in the capital goods industry who have filed proxies, 20 recommended annual votes, 3 recommended biennial votes, 25 recommended triennial votes and 1 made no recommendation

Frequency Results

According to Mr. Borges, to date stockholders at ~39% of the 74 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 ~51% of the 51 companies that have made triennial recommendations have supported annual votes.

Similar to the Sanderson Farms example I noted last week (the first company with a high level of institutional ownership and without a huge level of inside ownership or other unique stockholder base whose stockholders supported a triennial vote), Universal Technical Institute seems to be the second similarly situated company to report receiving stockholder support for triennial say-on-pay votes.

• Universal Technical Institute recommended a triennial vote;
• According to Yahoo!Finance, ~81% of the company's stockholders are institutional and mutual fund owners (http://finance.yahoo.com/q/mh?s=UTI+Major+Holders);
• ISS and Glass Lewis both recommended annual votes; and
• Universal Technical Institute's stockholders voted in favor of triennial say-on-pay votes.  Note that the proxy described the voting standard for this proposal as a majority of shares present or represented at the meeting and entitled to vote, the triennial vote received ~48% of the votes cast (including abstentions) and the 8-K reported that the "advisory vote on the frequency of the vote on the compensation of the Named Executive Officers is recommended every three years."

After reviewing Universal Technical Institute's 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 has recently suggested that it will typically abstain on frequency proposals unless it holds a significant stake in the company, in which case it will vote for triennial votes – according to Yahoo Finance, Royce holds ~9% of the company's stock). Again, this 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.

Say-on-Pay Recommendations and Results

To date, ISS has issued vote recommendations for 153 say-on-pay proposals at Russell 3000 companies. ISS has recommended voting FOR 134 (88%) of these proposals and AGAINST 19 (12%) of these proposals.

So far, still only two companies have received less than majority support from stockholders on their say-on-pay proposals – Jacobs Engineering and Beazer Homes USA. Jacobs Engineering is "under investigation" by its shareholders for allegedly paying its executives excessive compensation and the SEC recently settled a clawback enforcement action with the CEO of Beazer Homes.

Here is a link for more information.