"Trends in executive compensation" from Deloitte homes in on the most significant factors influencing say-on-pay successes and failures, with instructive takeaways for companies looking to avoid subpar shareholder support or proactively boost their support for their executive compensation programs.
Among other things, the firm's study of 17 companies whose say-on-pay support increased this proxy season by more than 50% compared to last year revealed robust disclosure by those companies of their shareholder outreach efforts, identification of shareholder concerns, and a description of responsive executive compensation program changes, as graphically depicted here:
Conversely, subpar say-on-pay support is attributed primarily to a perceived pay/performance disconnect based on e.g., the use of one-time awards, as well as other factors such as the absence of performance-based long-term incentives, long-term incentives with short (e.g., one-year) performance periods, discretionary short-term incentive plans, and peer group concerns.
The report also summarizes the 36 compensation-related shareholder proposals this proxy season as of July 31, 2019, with most seeking either to link executive pay with ESG metrics or modify incentive plan calculations (e.g., use of GAAP/non-GAAP, share buyback implications). Only two comp-related shareholder proposals passed, both of which related to clawbacks.
The trend toward companies increasingly considering the inclusion of E&S or ESG goals in executive performance evaluations and/or incentive plan metrics is also addressed; however, the report observes that a sizeable number of large company incentive plans purportedly already include these metrics. The discussion encourages thoughtful awareness of the trend, and consideration of the adoption of "meaningful and measurable" ESG goals in balance with financial and operational goals to benefit the company over the long-term.
See our recent reports: "Say-on-Pay," "2019 Proxy Season: Say-on-Pay," "Executive Compensation Metrics: Diversity & Inclusion," and "Sustainability-Linked Executive Compensation," and access additional information and resources on these pages: Say-on-Pay, Executive Pay, Sustainability/ESG. This post first appeared in the weekly Society Alert!