Video Friday: Defending Against Negative Say-On-Pay Recommendations

In say-on-pay’s second year, recommendations from proxy advisors have grown in significance for public companies. This week’s Behind The Numbers, from Equilar takes a look at firms that faced daunting negative recommendations by proxy advisors in 2012 and examines what those companies did to defend their pay practices.!

While ISS issued negative recommendations in nearly one out of five case, I recommended voting against even a higher proportion of such proposals.

I generally vote against pay packages where NEOs were paid above median in the previous year but I do make exceptions where something obviously warrants different treatment. According to Bebchuk, Lucian A. and Grinstein, Yaniv (The Growth of Executive Pay, Oxford Review of Economic Policy, Vol. 21, Issue 2, pp. 283-303, 2005), aggregate compensation by public companies to NEO increased from 5 percent in 1993-1995 to about 10 percent in 2001-2003. That’s an unsustainable shift of funds.

Few firms want to admit to having average executives. They survey executive compensation at corporations and then set compensation packages that are above average for their “peer group,” which is often chosen aspirationally. Equilar has come up with what looks like a better way to arrive at peer groups. Listen to a Proxy Talk discussing enhancements to Glass Lewis’ proprietary Pay-for-Performance model. The call explains how the new Pay-for-Performance model will be used as part of their research and analysis to make proxy voting recommendations on say on pay proposals.
While the “Lake Woebegone effect” may be nice in fictional towns, “where all the children are above average,” it doesn’t work well for society to have all CEOs considered above average and their collective pay spiraling out of control. We need to slow the pace of money going to the 1% if our economy is not to become third-world.  See the USPX Shareowner Guidelines for Say-on-Pay Voting, August 3, 2011.
For additional references, see What is a CEO worth? Don’t look to peers by Charles M. Elson and Craig K. Ferrere, Directors & Boards, third quarter 2011 and Compensation and the Myth of the Corporate Superstar by the same authors, HBR, 2/1/2012.

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