‘What do daffodils, oppressed people and cross shareholders all have in common?’ asked Janet Dignan in her August 2012 cover story for IR Magazine. The answer, of course, was ‘spring’ and 2012 was the year shareholders really made their voices – and their votes – heard over executive pay.
IR Magazine August 2012:
At the time, Dignan noted in her article, Shareholder rebels with a cause, that ‘in the US it’s only been in the past couple of years that shareholders have even had the right to vote on the question of pay, and that vote is not a binding one. In the UK, shareholders have had an advisory vote for many years but have typically shown either apathy or a lack of any real concern about pay levels – until now.’
So what was responsible for the change? In the UK, then prime minister David Cameron and some of his colleagues had put a focus on pay levels for bankers in particular, and for FTSE 100 company directors in general, while the media was also vocal on the issue. In the US, action at the likes of Citigroup, which made the front page of the New York Times when only 45 percent of shareholders approved the bank’s $15 mn compensation for CEO Vikram Pandit, further pushed the case for say on pay.
It’s also a question of safety in numbers, explained Sarah Wilson, CEO of UK voting agency Manifest (now part of parent company Minerva Analytics), at the time. ‘They are now part of a group so they are no longer afraid of sticking their head above the parapet,’ she told Dignan in August 2012.
The picture today
The result of the ‘shareholder spring’ is debatable. Heads rolled and there’s definitely been a sustained focus on executive pay ever since, but $1 mn bonuses continued and it hasn’t quite been the revolution some expected. What’s more, ‘after an initial wave of opposition, the number of companies losing [say-on-pay votes in the US] fell in 2016 and 2017,’ writes Ben Ashwell, digital editor at IR Magazine, covering the findings of recent Willis Towers Watson research.
This year however, ‘the number of companies facing failed say-on-pay votes is up considerably on last year, with indications that investors are looking beyond the metrics that have defined early say-on-pay reporting,’ Ashwell adds.
Don Delves, executive compensation practice leader for North America at Willis Towers Watson, says investors’ approach to say on pay is maturing. ‘We’re seeing investors and ISS taking a more serious look at what a company’s performance measures are and how it sets its goals,’ he tells Ashwell. ‘We believe that’s the cutting edge. Companies can do a more sophisticated job of choosing and setting goals.’
Ashwell writes that there’s a movement away from looking at relative total shareholder returns as the most important metric, because, as Delves says, ‘there’s a strong argument that it’s a result… it’s an output, not an input.’ Instead, companies should look to draw a correlation between their executive compensation plans and their long-term strategy.
Delves adds that one of the biggest trends he is seeing is in compensation committees eyeing a broader mandate. ‘Many of our compensation committee clients are asking broader questions about topics like gender pay equity, median worker pay, diversity and inclusion issues, and general workforce issues,’ he says, with one of the driving factors behind this change being the CEO pay ratio requirement, which came into effect in the US this year.
The role for IR
The changes have also resulted in a greater role on the proxy for IR professionals, Ashwell says.
‘Say on pay has played a large part in the improvements we’ve seen in proxy statements in the last few years. IR teams are increasingly vital in shaping the look and feel of the compensation discussion and analysis (CD&A) section – rather than leaving it to their colleagues in HR and legal,’ he explains. ‘So adding more graphs, charts, graphics, a highlights section and an executive summary are all becoming more common – and are based on investor feedback often given to the IR team.’
As IR Magazine builds up to its 30th anniversary issue – the upcoming winter 2018 issue, which will be the 279th edition of the industry’s flagship magazine – we’ll be posting more throwbacks to old covers, revisiting some of the hot topics from the past 30 years of investor relations and hearing from some of the industry titans.