Companies not Sure How to Measure Say on Pay Success

Some 49 percent 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 a Towers Watson & Co. survey released Jan. 5.

Of the 51 percent of companies that have defined how they will evaluate success, 19.6 percent say they believe that a favorable shareholder vote of at least 90 percent would be considered successful, while 37.2 percent say they believe a vote of at least 80 percent would be considered successful, 27.5 percent say they believe it needs to be a vote of at least 70 percent, 13.7 percent say they believe a vote of at least 60 percent, and 2 percent say they believe a vote of at least 50 percent, according to a Towers Watson written statement about the results.

Only 8 percent of companies surveyed have a process in place for “developing appropriate action plans in response to potential shareholder concerns” on executive compensation, the statement said.

Fifty-one percent of companies expect to hold annual shareholder advisory votes on executive compensation, while 39 percent prefer to hold the vote every three years and 10 percent every two years.

Some 48 percent of respondents “are making some adjustments to their executive pay-setting process in preparing for the upcoming proxy season,” the statement said. Those adjustments include more detailed explanations of compensation programs in SEC filings and changes in severance programs and high-profile perquisites.

Under the Dodd-Frank Wall Street Reform and Consumer Protection Act enacted last year, companies have to conduct say-on-pay votes at least every three years but 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 nonbinding shareholder vote at least every six years.

“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,” said James Kroll, a Towers Watson senior consultant, in the statement.

Towers Watson surveyed 135 U.S. publicly traded companies in mid-December.  

Filed by Barry B. Burr of Pensions & Investments, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.

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