As has been widely reported, the Towers Watson compensation consulting firm recently released the results of a survey asking 135 public companies how often they expect to hold the Say-on-Pay advisory votes required under the Dodd-Frank Act. The survey results:
Triennial Say-on-Pay vote expectation: 39%
Biennial Say-on-Pay vote expectation: 10%
Annual Say-on-Pay vote expectation: 51%
Interestingly, the picture painted by this survey is quite different from that presented by the proxy statements filed so far in 2011. Mark Borges just published his updated tally (as of January 7) of 87 companies’ proxy statements in his Proxy Disclosure Blog on compensationstandards.com (subscription site). According to Borges’ tally, these companies recommended as follows in their “Say When on Pay” shareholder advisory votes on frequency:
Triennial Say-on-Pay vote recommendation: 45 companies (52%)
Biennial Say-on-Pay vote recommendation: 9 companies (10%)
Annual Say-on-Pay vote recommendation: 25 companies (29%)
No recommendation: 8 companies (9%)
So what’s the explanation? Why are the actual recommendations of filing companies (mostly triennial) so different from the expectations expressed in the Towers Watson and Romanek surveys (mostly annual)? In a post on thecorporatecounsel.net Blog, “Poll Results: Say-on-Pay Recommendations”, Broc Romanek speculated that the survey results provide the more accurate reading, with the difference in the actual results caused by the “limited experience” with companies that have filed so far. (In fact, Romanek conducted his own informal survey, with results very similar to Towers Perrin’s: fifty percent of his respondents preferred an annual vote).
I have a different theory – I think the results of the surveys might have been affected by the demographics of the companies that responded. I checked in with Towers Perrin, and as it turns out, their 135 survey respondents tended to be larger companies. Eighty-three percent of the respondents had revenues of $1 billion or more, including forty-seven percent that had revenues of $5 billion or more. In other words, it appears that a sizeable majority were Fortune 1000 companies. Anecdotally, I believe larger companies are more likely to recommend annual votes, because the larger companies are more typically concerned about negative reactions from institutional investors, or about obtaining positive recommendations from the proxy advisory firms such as ISS.
Therefore, I think the recommendations of the companies that have filed proxies to date are more representative of the recommendations of the companies that will file in 2011. Certainly there is a broader range of companies represented by these filers (twenty percent of these filing companies have been smaller reporting companies.) Of course, it’s just a theory – the “final score” at the end of the year will tell. One other unknown factor is the number of companies that will recommend a triennial Say-on-Pay vote but be faced with a shareholder plurality vote favoring an annual Say-on-Pay vote. One way or another, 2011 will be an interesting year.