In the Year of the Stakeholder: A Closer Look on Say at Pay Votes
Dear Friend,
As we move into the second half of proxy season 2021, I think most of us will agree that it has been quite a year. With the economy emerging from COVID, and stakeholder prominence continuing to gain traction with compensation committees and investors, I thought it would be interesting to look at where we are with Say on Pay (SOP) votes to date. Since 2011, SOP has been one of the best ways for investors to weigh in on the alignment of management and investor (now stakeholder) interests and provide transparency into corporate governance.
In this Year of the Stakeholder, I have found investors looking more closely at executive pay and not supporting adjusted payouts where they did not feel they were warranted or one-time awards in addition to regular long-term incentives. And, in some instances, they are not taking legal liabilities into account when determining target pay.
In our latest Farient Advisors Brief (see below), I shared that “Against the backdrop of financial performance, economic disruption, and employee layoffs and/or furloughs, it is interesting to see if investors are giving boards a pass or holding their feet to the proverbial fire [on SOP votes].” Farient’s analysis of the 235 S&P 500 companies reporting SOP votes in both 2020 and 2021 showed 25 companies to date received low SOP votes (with less than 75% shareholder support) – or failed them altogether.
As expected, COVID played a significant role as more than 116 companies in the S&P 500 announced changes to their compensation plans this year. Through our analysis, we found companies such as Starbucks and Walgreens Boots Alliance called out for COVID-related pay changes, whereas others such as Amerisource Bergen, Johnson & Johnson, Wells Fargo and IBM were called out for questionable pay practices. And, in still other cases, like General Electric, the board lowered pay-for-performance thresholds to account for the historically bad year.
As my colleague, Eric Hoffmann highlighted in a recent conversation with Reuters ,“investors hate it when boards override the pay plans they put in place.” Since investors are voting against executive pay packages at a higher rate than in years past, directors should consider how to manage these trends that are accelerating and becoming part of stakeholder discussions.
To that end, the largest investors are committed to pay and performance alignment in their portfolio companies. With the drumbeat of environmental, social and governance issues getting louder each year, compensation committee directors will continue to bear the burden for pay programs that don’t work in good times and bad, metrics that fall short of goals, and issues around human capital management that impact the long-term viability of the business.
With six months to go in 2021, all bets are off.
Sincerely,
Dayna Harris
[1] Amerisource Bergen and Johnson & Johnson – Both pharma companies have potential liabilities due to the opioid crisis, and Johnson & Johnson announced in 2020 that it had agreed to pay approximately $100 million to settle more than a thousand lawsuits after asbestos-contaminated talc was found in their baby powder product.
Hot Off The Press From Farient
2021 Say on Pay Update: Shareholders Tighten the Reins
Proxy season 2021 arrived with its typical flood of disclosures and “March Madness”-like surprises. This year, however, the systemic global breakdown caused by COVID-19 and the lack of preparation for any pandemic has taken its toll on businesses and their employees, customers and communities. What trends are emerging – or accelerating – from this year’s SOP votes? In our latest Farient Brief, we examine how corporations are addressing pay in a pre and post pandemic world.
Las Vegas Review-Journal – Pay gap widens between casino CEOs, average casino workers
CEO compensation has grown much faster than profits and stock prices over the years, according to findings from the Economic Policy Institute. I spoke with the Las Vegas Review-Journal about the complicating factors contributing to the widening pay gap between casino CEOs and casino workers during this time of economic hardship.
Bloomberg – CEO Pandemic Pay: ‘Heads I Win, Tails I Win Almost as Much’
In 2020, Norwegian Cruise Lines lost $4 billion and shares dropped 56%, while CEO Frank Del Rio received his biggest-ever pay package. In an interview with Bloomberg, Farient Advisors’ CEO Robin Ferracone explains why some companies may ease up on performance measures within compensation packages in times of crisis.
Fortune 500 Committee Chairs Assess a Year of the Pandemic
As 2020 drew to a close, Farient co-hosted a NACD series convening Fortune 500 audit, compensation, nominating and governance, and risk committee chairs to discuss critical issues that boards need to confront. In the recently published summary, final executive compensation payouts were the hot topic. Robin Ferracone addresses why directors should use caution in making adjustments to the long-term incentive plans.
June 2, 2021: CEO Trust: The Inside Story Private Equity
While the number of public companies may be declining, private equity (PE) is fueling explosive growth in private companies. Whether you are an owner-operator of a private business looking to sell or take some “chips” off the table or a seasoned executive looking to partner with a PE investor to manage or acquire a business, it is important to understand and consider the distinctive approaches different PE firms take to governance and management. Farient Partner Mark Hodak will lead a distinguished panel in presenting an insider’s look at the industry that is now approaching $5T in global assets under management. For additional information, contact us at info@farient.com.
June 8, 2021: National Association of Corporate Directors (NACD) Carolinas: Disruption and the Art of Adaptation: Proxy Season 2021 Recap
While the number of public companies may be declining, private equity (PE) is fueling explosive growth in private companies. Whether you are an owner-operator of a private business looking to sell or take some “chips” off the table or a seasoned executive looking to partner with a PE investor to manage or acquire a business, it is important to understand and consider the distinctive approaches different PE firms take to governance and management. Farient Partner Mark Hodak will lead a distinguished panel in presenting an insider’s look at the industry that is now approaching $5T in global assets under management. For additional information, contact us at info@farient.com.
June 24, 2021: HCM International Presents The Compensation Committee Circle, The Compensation Committee’s Role in Creating a Diverse and Inclusive Culture
DEI is now a top priority for boards of directors. Board members in every geography and industry continue to step up and do the right things for all stakeholders. In this session, HCM and Global Governance and Executive Compensation Group (GECN Group) partners from the U.S. (Farient Advisors), U.K. (MM&K) and South Africa (Century 21), join Switzerland-based HCM to explore the evolving global landscape of diversity and inclusion, and the expanding role of the Compensation Committee in fostering stakeholder prominence across the ESG spectrum. For additional information, contact us at info@farient.com.
Dayna Harris is a Farient partner with more than 20 years of experience providing advice on executive and Board compensation. She focuses on designing incentive programs that align compensation with business strategy and value creation for shareholders. Her incentive design work centers on identifying the appropriate incentive structures, performance measures and approaches for goal-setting.
About Farient
Farient Advisors LLC is an independent executive compensation, performance and corporate governance consultancy. Farient provides a comprehensive array of services to boards of directors and management, including compensation program design, performance measurement and goal-setting, pay and performance alignment, board of directors’ compensation and shareholder communications, among others. Farient is located in Los Angeles, New York, Louisville and Dallas and is a founding partner of the Global Governance and Executive Compensation Group (GECN Group), serving clients throughout the world. Farient is recognized by the Women’s Business Enterprise National Council as a certified diverse company.
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