By Cydney Posner

Compliance Week reports on a Towers Watson study showing that, as a result of say on pay, companies are modifying their compensation plans. Although only a small minority of companies experienced failed votes, say on pay is still triggering a reaction, especially among those companies that received only lukewarm support from shareholders or negative recommendations from proxy advisory firms: "A new study from Towers Watson finds that of companies with less than 80 percent shareholder support and at least one negative vote recommendation, 71 percent plan to spend more time and effort next year to improve voting results next season. Meanwhile, 41 percent of companies who received at least one negative advisory firm recommendation say they plan to spend more effort in the next proxy season….Overall, 8 in 10 companies said say-on-pay had from a moderate to no impact on their focus for the 2011 proxy season and 3 in 4 companies plan to devout the same amount of effort on the topic next year." These study findings paralleled TW's consulting experience.

According to the study, "[e]ven companies that received broad support made changes on their plans to get there. Among companies that received positive recommendations from advisory firms, many reached out to shareholders directly (56 percent), communicated with proxy advisers (53 percent), hired a proxy solicitor (40 percent) and made changes to their compensation structure (32 percent)."

A majority of the study respondents said that they planned to implement some change next year, such as a change in pay determination processes. For example, 44 percent plan to perform more pay-performance analysis. Similarly, the same percentage plan to make changes such as altering their severance provisions, perks and change-in-control arrangements. CD&A is expected to receive more attention and 17 percent plan to make changes to their compensation programs.

Towers Watson also emphasized the importance of shareholder outreach, especially because proxy advisory firms have their own measures for determining the link between pay and performance. The study showed that more than 50 percent of respondents think proxy advisers do influence say-on-pay results, although 57 percent think these firms have little influence on pay program design.

The article also cites a report from the Conference Board, recommending shareholder outreach prior to implementing changes to compensation structure. This report suggests that "companies need to be mindful that the say-on-pay vote is a recurring requirement and ongoing focus on the process is required to ensure successful outcomes in the future." The findings compiled by the Conference Board for 2011 are as follows:

  • "Failed votes still remain small minority. Just 1.6% of the 2225 Russell 3000 companies who held say-on-pay votes failed to win them.
  • The industry or size of company were not influential in receiving negative votes
  • Although in most cases negative recommendations did not result in failed votes, the influence of proxy advisory services should not be discounted.
  • A truly successful vote requires more than bare majority. 
  • Investor outreach strategies can influence outcome, and companies need to respond quickly to negative vote recommendations."

This content is provided for general informational purposes only, and your access or use of the content does not create an attorney-client relationship between you or your organization and Cooley LLP, Cooley (UK) LLP, or any other affiliated practice or entity (collectively referred to as "Cooley"). By accessing this content, you agree that the information provided does not constitute legal or other professional advice. This content is not a substitute for obtaining legal advice from a qualified attorney licensed in your jurisdiction, and you should not act or refrain from acting based on this content. This content may be changed without notice. It is not guaranteed to be complete, correct or up to date, and it may not reflect the most current legal developments. Prior results do not guarantee a similar outcome. Do not send any confidential information to Cooley, as we do not have any duty to keep any information you provide to us confidential. When advising companies, our attorney-client relationship is with the company, not with any individual. This content may have been generated with the assistance of artificial intelligence (Al) in accordance with our Al Principles, may be considered Attorney Advertising and is subject to our legal notices.