‘Say on Pay’ Data Points to Strong Support for Exec Comp Plans

When it comes to 2024 results and the end of the recent proxy season, WTW’s U.S. executive “say on pay” research covering the Russell 3000 showed a continuation of the 2023 data trend.

Brian Myers, a North America governance team lead and the director for executive compensation at WTW, explained that results from the 2024 proxy season identified persistent strong support (from both proxy advisors and shareholders) for pay plans that began in 2023 — with pay and performance alignment influenced by strong stock price movement to date.

Say on pay (SoP) refers to a law in which an organization’s shareholders can vote on the compensation of executives and related compensation policies.

A snapshot of the WTW SoP survey results found a 1% SoP failure rate, a decrease from 2% in 2023, with 63% of that 1% being first-time SoP failures. In addition, organizations had 90% average board SoP support, with 94% of those organizations providing support greater than 70%.

“Overall, we still see pay-for-performance tests as a key driver behind say-on-pay concerns, and we do expect this trend to continue,” Myers said, while adding that from a qualitative perspective, going back to early 2023, there has been a “back to prepandemic business” approach by proxy advisors.

He explained this trend is characterized by scrutiny in typical key areas, including:

Poor disclosures (e.g., a lack of transparency for new-hire awards or clear disclosures supporting severance benefits),
One-time special awards (details and rationale),
Incentive plan goal setting (rigor of goals and rationale for targets), and
Responsiveness (or lack thereof) to shareholder concerns.

Disruption Is Now Expected and Just Part of the Process

Myers noted that though investors and proxy advisors understand they live in a world of constant economic uncertainties, there is also an expectation that employers have established — or re-established — guiding governance and compensation principles to move more seamlessly through disruptive events and times.

“Compensation committees are using the principles to move further away from the era of COVID-19-style adjustments and keep a business-as-usual approach when it comes to pay-for-performance expectations,” he said.

Also, according to Myers, investors largely prefer performance-based incentives vs. time-based awards and will look with a skeptical eye at situations that appear to be “shifting the goalposts” in the middle of the game.

“Such practices have largely been left behind, as well as other historical irritants upon which the proxy advisors focus,” Myers said. “We’ve seen this in action over the 2024 proxy season, and the reduced negative vote recommendations support this notion.”

An Expectation of Responsiveness

Responsiveness — especially in the face of prior-year low support — continued to be a hot button issue for proxy advisors, according to Myers. For example, in the U.S., Institutional Shareholder Services (ISS) and Glass Lewis proxy voting require demonstrated responsiveness when SoP vote results fall below 70% and 80%, respectively.

Myers explained this responsiveness is carried out via shareholder engagement, where organizations can hear concerns directly from shareholders and further explain the compensation program’s overarching narrative.

“Since the arrival of SoP, we have seen more frequent and robust shareholder engagement, followed by clear and compelling disclosure in the CD&A [compensation discussion and analysis],” he said. “However, actions speak louder than words, which is why we see disclosure of the engagement response details.”

According to Myers, in the age of SoP, if changes are made because of shareholder engagement, it’s important to demonstrate responsiveness by describing it in the CD&A process.

Also, he added, it’s critical to understand that following a failed SoP vote and resulting strong engagement and disclosure efforts, the average year-over-year increase in shareholder support was greater than 30%.

“Companies that do not take this engagement opportunity seriously will see ongoing proxy advisor scrutiny around SoP,” Myers explained.

According to Myers, “proactive, ongoing dialogue” helps both issuers and shareholders understand each other’s preference and objectives. He added that neither side of the proxy voting process likes surprises, though when they do happen, it’s helpful if there is a baseline of conversation and dialogue with key shareholders — where overarching compensation objectives and principles have been established.

“That way, when situations do arise, large or small, there is a basis of trust on both sides from which to work,” Myers said.

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