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More Thoughts on Keeping Score: Shareholder Advisory Votes on Compensation

(The following post originally appeared on ONSecurities, a top Minnesota legal blog founded by Martin Rosenbaum to address securities, governance and compensation issues facing public companies.)

February 3, 2011

It’s early February, and everyone has their eyes on the score in the biggest game of the year. I don’t mean the Super Bowl (especially after the season the Minnesota Vikings had, which we’d all like to forget). I mean this year’s annual shareholders meeting for every public company. This year, the annual meeting is a whole new ball game, because for the first time, most public companies are facing two new shareholder advisory votes required under the Dodd-Frank Act: the frequency vote (“Say When on Pay”) and the Say-on-Pay vote itself.

This year so far, I’ve spent a lot of time focusing on the frequency vote, because it involves several tactical decisions for boards of directors, and new language to be drafted. Now the voting results are starting to come in. It’s becoming clear that the choice for an annual Say-on-Pay frequency has “The Big Mo” on its side, fueled by the recommendation of the shareholder advisory service ISS to support an annual frequency, and the stated preferences of a large number of institutional shareholders for an annual vote. According to the Proxy Disclosure Blog (subscription site) by Mark Borges of Compensia on earlier this week:

If you're keeping score, of the nine companies that recommended a triennial vote and have so far announced their voting results, five have seen their shareholders express a preference for annual votes. This week should help determine whether this early trend is going to hold.

I’ve advised companies to keep their eye on the ball, though. That means focusing more attention on the Say-on-Pay vote itself. Ultimately, the results of this vote will have more impact than the frequency vote. Borges reported the following earlier in the week:

There were 18 annual meetings of shareholders held this past week where shareholder advisory votes were conducted . . . . Of the 10 companies reporting the voting results from their annual meetings, nine reported that their executive compensation programs had been approved via "Say on Pay" votes, with passage rates ranging from 65.8% (Monsanto) to 99.4% (Tech/Ops Sevcon - a smaller reporting company). One company - Jacobs Engineering Group - disclosed that its "Say on Pay" vote had failed, with only 45.5% voting in favor of its executive compensation program.

Of course, I’ll continue to watch, and comment on, the scores at upcoming annual shareholders meetings. And I guess I’ll watch the Super Bowl too – it has much better commercials.


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