How Say on Pay Has Affected Shareholder Engagement

say on pay affecting shareholder engagement

In a recent report titled Boards, Shareholders, and Executive Pay, PwC’s Governance Insights Center takes a look at director sentiment following Say on Pay, the 2011-established shareholder advisory vote on executive pay practices.

In the years that have followed, shareholder support for Say on Pay has been strong. A recent Equilar blog reported that more than three-quarters of S&P 500 companies received 90% approval (or more) in 2015 for their executive compensation packages.

Although the advisory vote is technically non-binding, Say on Pay has had a significant influence on executive compensation disclosures and shareholder engagement. In the PwC report (which cited their Annual Corporate Directors Survey), 79% of directors indicated that Say on Pay has prompted an increase in shareholder dialogue.

Q: What is your assessment of the cumulative impact
of say on pay voting?

PwC corporate director survey

In a recent episode with PwC Partner Catherine Bromilow, she described the response we’re seeing from corporate boards and the changes beginning to take place.

    1. Directors Are Becoming More Involved in Shareholder Engagement

    Institutional investors have cited higher levels of director engagement in their meetings—a trend that was confirmed by another PwC report on 2016 proxy statements. Not surprisingly, executive compensation took first place on the list of topics most commonly discussed by directors in shareholder meetings.

    “What’s been really interesting as we’ve reviewed these proxy statements is just how thoughtful some of the disclosures have been,” said Bromilow.

    As a result, we’re seeing a change in the structure of board disclosures. According to Bromilow, a number of companies did an excellent job disclosing specific actions that the board took as a result of direct shareholder engagements. “[They made] it very clear that ‘This is what we heard’ and ‘This is how we reacted’,” said Bromilow.

    2. The Influence of Proxy Advisors Remains Strong

    In addition, directors generally agree that, following the mandate of Say on Pay, the influence of proxy advisors continues to rise. As we heard recently in our Investors Board Performance Review: “It is difficult for investors to know what boards are doing well because we don’t have a window,” said Michael Garland of the New York City Comptroller’s Office.

    Proxy advisors like ISS and Glass Lewis continue to influence voting on executive compensation. As long as proxy advisors are continuing to push for improved shareholder engagement and better disclosures, boards will feel the continued pressure to improve their efforts. In the first episode of our Investors Board Performance Review, the ISS’ Sean Quinn (Head of U.S. Research and Voter Recommendation Influencer) gives the proxy advisor’s take on what corporate boards are doing well and where they can improve:

Don’t miss these and other episodes on shareholder engagement.