Some 49% of companies don't know what level of shareholder support of executive compensation in say-on-pay votes will be considered a successful outcome by their boards of directors, according to survey results released Wednesday by Towers Watson.
Of the 51% of companies that have defined how they will evaluate success, most believe that a favorable shareholder vote of at least 80% would be considered successful, according to a Towers Watson statement about the results.
Only 8% of companies responding to the survey have a process in place for analyzing the results of the non-binding shareholder vote on executive compensation and for “developing appropriate action plans in response to potential shareholder concerns,” the statement said.
The consulting firm surveyed 135 U.S. publicly traded companies in mid-December, according to the Towers Watson statement.
A slight majority of 51% of companies expect to hold annual shareholder advisory votes on executive compensation, while 39% prefer to hold the vote every three years and 10%, every two years, the statement said.
Companies cited a range of reasons for favoring a particular voting frequency. Some 40% of respondents cited “accountability to shareholders and a desire to minimize administrative burdens as factors having the greatest influence on their vote-frequency recommendation, while slightly fewer cited shareholder preferences, proxy adviser policies and providing shareholders with an avenue to express concern about executive pay without casting negative votes on other matters as key factors,” the statement said.
Some 48% of respondents “are making some adjustments to their executive-pay-setting process in preparing for the upcoming proxy season,” the statement said. Among those making changes, “65% are devoting more attention to explaining their programs in the Compensation Discussion & Analysis” in the 10-K report; “41% are performing additional analyses on the link between their executives' pay and company performance; and 30% have made or are considering changes to programs such as severance, change-in-control benefits and perquisites that have high visibility.”
“The survey responses suggest that companies are struggling to understand the implications of say-on-pay votes and many are taking a wait-and-see approach to measuring success,” James Kroll, Towers Watson senior consultant, said in the statement. “While many companies have been taking steps to make their executive-pay programs more shareholder friendly in recent years, relatively few have been thinking beyond their first say-on-pay votes to how they will analyze and address shareholders' input going forward. This new era will require companies to step up their ongoing communication with shareholders and tell a compelling story about how their pay programs help drive business performance, while also listening and responding to shareholder concerns. This is not a one-shot deal. It will be a continuous process.”
Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, enacted into law last year, companies have to conduct say-on-pay votes at least every three years and are allowed discretion on whether to hold annual, biennial or triennial votes, according to a Tower Watson statement on the survey results. The law requires companies to put the say-on-pay frequency question to a non-binding shareholder vote at least every six years.
By law, the first say-on-pay and so-called say-on-when votes must be held this year.