Four key trends of the 2012 proxy season

Impact of ‘say on pay’ goes beyond compensation

  • Share

Investors continue to register high support for most compensation programs through their voting on say-on-pay (SOP) proposals.

The number of proposals failing to receive majority support did increase slightly from last year. These SOP proposals are impacting the corporate governance landscape by:

  1. Forcing company-shareholder engagement on this topic
  2. Reshaping executive compensation and related disclosure practices
  3. Reducing the number of shareholder proposals focused on compensation topics
  4. Lowering opposition votes to compensation committee members

A review of proxy statements filed by S&P 500 companies that received less than 70% support on their 2011 SOP proposals shows that nearly all made changes relating to shareholder outreach efforts. These targeted pay reforms generally either sought to link pay with performance more closely or to eliminate controversial pay practices.

EY Shareholder proposals focused on executive compensation

The top three changes highlighted by these issuers include:

  • Strengthening performance metrics
  • Placing more emphasis on performance-vesting equity compensation
  • Eliminating the use of tax gross-ups

Enhanced disclosure becomes board priority

Trends in proxy-statement disclosure include:

  • Letters to shareholders from boards that communicate their message around particular areas of investor interest
  • Disclosures showcasing shareholder outreach efforts in the area of executive compensation
  • Executive summaries with improved readability that highlight shareholder-friendly practices