Shareholders who voted against CEO pay did so more because of the magnitude of total compensation than total shareholder return, according to an Institutional Shareholder Services report of voting on say-on-pay proposals.
The ISS report focused on companies where shareholder support for ratifying top management pay in advisory votes on executive compensation in 2011 was less than 70%. Among those companies, ISS found that total shareholder return “alone cannot account for the high level of opposition, given performance in some cases was at or above median” total shareholder return for peer companies that received higher levels of shareholder support in say-on-pay proposals.
ISS “looked at CEO pay magnitude vis-a-vis (total shareholder return) to conclude the former likely drove votes ‘against' on 2011” say-on-pay proposals, according to the report, “Parsing the Vote: CEO Pay Characteristics Relative to Shareholder Dissent.”
While total shareholder return “is widely seen as the most critical driver of votes, CEO pay magnitude also plays a role,” the report said.
The analysis covered Russell 3000 companies.