State Street elaborated on its announcement earlier this year (reported on here) that it would begin using abstentions, in addition to votes "For" and "Against," to register its views on management pay proposals in this new position paper: "Transparency in Pay Evaluation: Adoption of Abstain as a Vote Option on Management Compensation Resolutions."
The paper provides examples of instances where SSGA may opt to abstain, i.e., communicate its "qualified support" or "support with reservations," on executive pay - as opposed to voting only "For" or "Against," as was the case historically:
Figure 1: Examples of Vote Decisions on Compensation Proposals
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SSGA Vote
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Potential Rationale for Vote Decision
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For
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- Pay metrics are clearly disclosed and aligned to strategy and the pay structure supports long-term value creation.
- Pay is aligned with long-term company performance.
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Against
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- Pay quantum is excessive despite poor performance.
- Disclosure of the specific performance targets for long-term/short-term plans is inadequate.
- The pay program includes a re-testing feature.
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Abstain
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- A one-time award grant is made for retention purposes and is not deemed to be excessive and company performance is strong.
- Company has responded to some of our concerns on pay, but other significant concerns persist.
- There is a lack of adequate disclosure or some concerns with performance metrics but there is evidence of strong long-term performance.
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SSGA indicates that there won't be in change in how it evaluates compensation; rather, the addition of "Abstain" as a voting option is aimed at more clearly communicating to management its views on pay proposals, which SSGA expects will result in companies being more responsive to its concerns going forward.
This news was first reported in yesterday's weekly Society Alert! Access additional information and resources on institutional investor policies, priorities and views here.