146 Companies Move from Triennial to Annual Say-on-Pay Votes in 2017
This proxy season shareholders voted at 146 companies in the Russell 3000 to more regularly vote on executive compensation, enabling annual feedback on the issue from shareholders rather than every three years.
The switch to annual voting on compensation is applauded by institutional investors that are part of a say-on-pay investor working group, coordinated by Segal Marco Advisors, focused on executive compensation concerns. The move comes at a time when the Financial CHOICE Act threatens to hinder traditional means for engagement between investors and company leadership. The Act passed the House and has not been taken up in the Senate.
“The Financial CHOICE Act seeks to gut investors' rights and reduce corporate accountability on a host of issues, including bloated executive pay,” said Thomas DiNapoli, New York State Comptroller whose department is a member of the investor group. “Limiting shareholders' right to vote on compensation sends a dangerous message to corporate executives that there are no consequences for excessive risk-taking or poor performance.”
Along with the New York Office of Comptroller, the investor working group includes: the AFL-CIO Office of Investment; Amalgamated Bank Longview Funds; City of Kansas City, Missouri, Firefighters’ Pension System; International Union of Bricklayers & Allied Craftworkers; Miami Firefighters’ Relief & Pension Fund; Nathan Cummings Foundation; Office of the General Secretary-Treasurer International Brotherhood of Teamsters; Office of the State Treasurer of Connecticut; Office of the State Treasurer of Illinois; Segal Marco Advisors; and the UAW Retiree Medical Benefits Trust.
“Shareholders should not have to wait three years to express their views on executive compensation,” said Illinois State Treasurer Michael Frerichs. “Annual say-on-pay votes are a straight-forward way to understand investors’ views on executive pay.”
“Annual say-on-pay votes are an important safeguard to prevent excessive executive pay,” added AFL-CIO President Richard Trumka. “For too long, CEOs have rigged the system in their favor while refusing to lift the wages of the workers that make their businesses run.”
“An annual vote on executive compensation is a better option because it affords shareholders the opportunity to provide a company’s compensation committee timelier feedback about the appropriateness of executive pay levels, which typically are decided on an annual basis,” commented Maureen O’Brien, Director of Corporate Governance at Segal Marco Advisors.
Under the Dodd-Frank Act, publicly traded U.S. companies are required to hold an annual, biennial or triennial advisory vote on pay to top executives. The votes are advisory, but when a majority of shareholders vote against a company’s compensation plan, the company typically responds by more tightly aligning pay with performance.
The investor group found 319 Russell 3000 firms limited the say-on-pay vote to once every three years. This prompted the investor working group to urge these companies’ Boards of Directors to endorse annual voting on executive compensation. 2017 is a year where most companies hold shareholder votes on how frequently they wish to vote on say-on-pay. This vote takes place once every six years, so another opportunity would not come until 2023.
Of the 319 firms contacted by the investor working group, 46 of them did not have a say-on-pay frequency vote because either they underwent a change in control or the vote is upcoming at a future meeting. Shareholders at the remaining 273 companies favored an annual vote, with 146 companies switching to an annual frequency (53 percent) and 127 remaining with a triennial vote (47 percent). Shareholders voted for an annual frequency at 37 companies despite a Board of Directors recommendation to choose a vote frequency of every three years. View a list of the 146 companies that switched is available, and read a sample copy of the institutional investor letter to triennial say-on-pay companies.
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Segal Marco Advisors, a member of The Segal Group, provides trusted advice that improves lives. Segal Marco delivers innovative, client-driven investment consulting advice, outsourcing solutions, proxy voting and corporate governance services. Clients include joint boards of trustees administering benefit plans under the Taft-Hartley Act, state and local governments, corporations, non-profit organizations, endowments and foundations. The firm works with financial services firms through Rogerscasey, a Division of Segal Advisors, and with Canadian clients through Segal Rogerscasey Canada.