Shareholders backed nearly all companies’ exec pay, says CII report

About 98% of U.S. corporations in the first half of 2011 received a majority shareholder vote in support of their executive compensation programs, according to a Council of Institutional Investors report issued Tuesday.

The report, titled “Say on Pay: Identifying Investor Concerns,” also said 37 U.S. companies through July 1 received a majority vote of shareholders rejecting executive pay at the companies.

The report focuses on 2011, the first year say-on-pay voting was required at U.S. companies under the Dodd-Frank Wall Street Reform and Consumer Protection Act.

For institutional investors, the recommendations in the CII report, prepared by Robin Ferracone, executive chair, and Dayna Harris, vice president, both of Farient Advisors, include reconsidering use of below-median total shareholder return as a metric if investors “are relying on it as a main screen to identify potential ‘against’ votes companies. Many companies that perform well based on (total shareholder return) do not have pay programs that are both sensitive to (shareholder) performance and reasonable in terms of the level of pay. … These companies will continue to fly under investors’ radar, perhaps overpaying for performance, until they stumble and become (a) proxy season’s poster child for poor executive pay practices.”

For companies, the report recommends they “should set the magnitude of pay changes in response to performance. … For example, corporate performance above the median of a peer group but not in the top quartile should not translate into top quartile pay for senior executives. Conversely, if a company performs below the 25th percentile of the peer group, executive pay should be significantly lower, not just a little below … the peer median.”

In addition, the report recommends companies “should respond to investor concerns.”

“Reaching out to investors on an ongoing basis will foster goodwill and help investors understand the intent and underlying rationale of the structure of pay programs,” the report said.

“The more aligned pay and performance the better,” the report said. This alignment “is a combination of pay sensitivity to changes in performance, the overall size of compensation and the proportion of performance-based pay.”

Regarding executive compensation, attendees at the CII conference in Boston on Tuesday were asked in an electronic poll how they believe say-on-pay voting at U.S. companies will turn out in 2012. The results found 70% of respondents believe more corporations will lose majority support than in 2011, while 2% believe more companies will receive a majority vote in support of their executive pay than in 2011. Another 12% believe there will not be a change in support in 2012, while 5% had no opinion.

Among other polling questions, 70% of respondents said unemployment will not fall below 9% by November 2012; 47% believe housing prices will begin to recover in three years, while 37% believe such recovery will take five years or more, 17% see recovery in two years and 3% said housing prices will rebound within one year.