Study Examines 2011 Say on Pay

September 27, 2011 ( – The Council of Institutional Investors has released a report by Farient Advisors  analyzing investor motivations to vote against “say on pay” at companies where the proposal failed to receive majority support at 2011 annual meetings. 
The paper, titled “Say on Pay: Identifying Investor Concerns,” is co-authored by Robin Ferracone, Executive Chair of Farient, and Dayna Harris, a Vice President of Farient. It draws on data from 37 companies whose pay plans fell short of majority support between January and July 2011, as well as interviews with institutional investors, investment management firms, proxy advisers and solicitors, and company officials.

“This report will help both active investors and companies to understand which executive pay practices are viewed as detrimental to long-term shareowner value,” said Ferracone. “Keeping a hefty portion of target pay performance-based is key to receiving a positive vote.”

Ann Yerger, Executive Director of the Council of Institutional Investors said, “Boards at companies where say on pay proposals garnered significant opposition should be reaching out to their investors to discuss their concerns. They should also review their pay practices and consider appropriate changes.”

Key findings include:

•  Investors voted against executive compensation for four primary reasons: pay for performance disconnect (92%); poor pay practices (57%); poor disclosure (35%); and unreasonably or inappropriately high compensation (16%).

•  Investors evaluated performance and pay over multiple years, looking primarily at total absolute shareholder return (TSR) over one-, three- and five-year periods.

•  Investors focused their time on in-depth analysis of pay at “outlier” companies, those with the largest disconnect between pay and performance.