In this Closer Look, we take a deep dive into a sample of companies that failed their say-on-pay votes and the changes they implemented the subsequent year. We find many failed votes are in response to large, one-time special awards. They are also heavily influenced by the voting recommendations of proxy advisory firms. Despite the number of corrections companies make in response to shareholder and proxy advisory feedback, most companies do not substantially reduce pay levels in response to a “no” vote.
We ask:
- Does the say-on-pay process reflect a healthy dynamic of the market correcting egregious practices, or does it reflect a standardization process whereby outlier practices are brought in line with industry norms?
- Why do companies make special one-time equity grants when they know these awards will draw the attention of shareholders and proxy advisory firms?
- How effective are proxy advisory firms at identifying companies with “inappropriate” pay practices?
- Are companies that fail say on pay egregious offenders or “unfairly” caught up in somewhat arbitrary compensation guidelines?
- How substantive are the changes a company makes following a failed vote?
- Is there any evidence that say on pay or proxy advisor recommendations on say on pay create better managerial incentives and increased shareholder value?