Say-on-Pay Voting Ease Opposition to Board Nominees, According to 2012 Proxy Voting Data

Requests for Change to Executive Compensation Plans Appear More Focused, While Proposal Volume Decreases

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Aug 01, 2012, 11:00 ET

NEW YORK, Aug. 1, 2012 /PRNewswire/ -- As say-on-pay (SOP) resolutions were being voted on during the 2012 proxy season, management nominees to boards of directors of U.S. public companies faced less opposition by investors. This and other data from nearly 2,500 annual general meetings (AGMs) held between January 1 and June 30 at Russell 3000 companies are discussed in the new edition of Proxy Voting Fact Sheet—the periodic report issued by The Conference Board in collaboration with FactSet Research.

The report reviews the most recent statistics on:

Voted, omitted, and withdrawn shareholder proposals
Proposal sponsors
Average voting results, by topics
Say-on-pay management proposals

In director elections, the spike in opposition votes detected in the aftermath of the financial crisis represented the sentiment of the investment community regarding executive compensation.

"In particular, it became apparent that the short-term equity-based incentives that had played a major role in the market disruption of 2008 were an affair in the exclusive domain of corporate insiders," said Matteo Tonello, managing director of corporate leadership at The Conference Board and responsible for proxy voting research. "The more recent trend reversal in opposition votes shows that, while say-on-pay voting practices may still need fine-tuning, they are producing the desired effect of favoring corporate-investor engagement on a matter that is critical to shareholder value creation."

Of the 1,856 companies reporting detailed SOP vote results through June 30, 49 executive compensation plans (up from 41 in 2011) have failed to receive the majority support of their shareholders. The list includes notable cases such as American Eagle Outfitters, Best Buy, Chesapeake Energy, Citigroup, and Pitney Bowes. Interestingly, a look at 2012 disclosure from companies that were on that list in 2011 confirms the systematic effort subsequently made to engage with shareholders on the issue, as well as the improvement of their SOP voting performance when their executive compensation plans went again to a vote during this proxy season. Only a handful of Russell 3000 companies (including Hercules Offshore, Nabors Industries, Kilroy Realty, and Tutor Perini) failed their SOP vote for a second year in a row.

Following the introduction of SOP, shareholder proposals related to executive compensation have become better formulated and more specific. In 2012, the total number of proposals on this subject has decreased significantly (63, or less than half the volume registered in 2010 and 2009), yet there appears to have been more focus on requests such as the introduction of retention periods for equity-based awards (26 of the 63 proposals, up from 14 proposals in the January 1-August 3, 2011 period) and the vote to limit golden parachutes and other extravagant severance agreements (12 of the 63 proposals, up from 7 in the 2011 period).

"In those cases when the pay-for-performance equation is clearly broken, larger investors no longer feel that they need to introduce a specific resolution on the topic: they can make their voice heard through the SOP vote," said John Laide, Vice President, FactSet Research Systems. In fact, the number of proposals pertaining to pay-for-performance, once relatively high (as many as 66 in the January 1-August 3, 2007 period), was down to a meager 7 proposals in the 2012 proxy season.

Other findings from the report include:

Through June 30, 66.3 percent of the shareholder proposals filed at Russell 3000 companies went to a vote, while 24.3 percent of proposals were omitted from the voting ballot by management, and 6 percent were withdrawn by their sponsors.
Most shareholder proposals submitted at Russell 3000 companies through June 30 were filed by individuals (263 proposals), followed by labor unions (132) and public pension funds (125). Public pension funds reported the highest percentage of voted proposals (82.4 percent), whereas proposals by religious groups showed the highest percentage of withdrawals (25 percent) and proposals by individuals showed the highest percentage of omissions (36.1).
By subject, the largest proportion of proposals filed at Russell 3000 companies as of June 30 related to corporate governance (352 proposals), including the popular issues of board declassification, majority voting, and the elimination of supermajority voting requirements. Of those, 66.3 percent were voted, 27.7 percent were omitted by management, and 3.1 percent were withdrawn by their sponsors.
Among shareholder proposals on corporate governance, those to declassify the board of directors received the highest average "for" votes as a percentage of votes cast (80 percent). Other widely supported proposal topics include the redemption (or the introduction of a contingency provision for the shareholder approval) of poison pills (73.1 percent of votes cast), the elimination of supermajority requirements (67.7 percent), and the adoption of majority voting in director elections (60.6 percent).
Among shareholder proposals on social and environmental policy, support level remained consistently low in spite of increasing volume. The highest proposal volume was documented for proposals on political issues (including the disclosure of or the adoption of formal policies on corporate political contributions: 70 proposals, which received an average support of 18.5 percent of votes cast) and environmental issues (including the publication of a comprehensive sustainability report and the adoption of a climate change policy: 32 proposals, which received an average support of 16.6 percent of votes cast).
Through June 30, shareholders of Russell 3000 companies filed 21 proposals on the election of a dissident's nominee to the board of directors, receiving an average support level of 69.8 percent of votes cast.

For complete details and additional findings, download the complete report: http://www.conference-board.org/publications/publicationdetail.cfm?publicationid=2275&subtopicid=20

About The Conference Board
The Conference Board is a global, independent business membership and research association working in the public interest. Our mission is unique: To provide the world's leading organizations with the practical knowledge they need to improve their performance and better serve society. The Conference Board is a non-advocacy, not-for-profit entity holding 501(c)(3) tax-exempt status in the United States. For more information, please visit www.conference-board.org.

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