Opposition to “say on pay” proposals at U.S.-based companies has held steady so far this proxy season, with an average 9.2% opposition recorded in the first five months of 2023, compared to 9.3% in the same period last year.
However, according to Insightia Voting data, there has been an almost 18% decline in the number of failed remuneration votes, with 28 companies facing over 50% opposition from shareholders on their pay plan in the period, compared to 34 in 2022.
Below, Insightia has highlighted some of the biggest rebellions to date, as well as upcoming shareholder meetings where pay plans could face similar pushback.
These cautionary tales illustrate why robust disclosure, as well as pay and performance alignment, are essential for demonstrating to investors that companies are taking reasonable steps to incentivize management whilst simultaneously looking to enhance shareholder value.
The biggest revolts
One of the executive compensation plans to face the greatest level of opposition so far this year concerned Simon Property Group, where almost 89% of shareholders revolted against the pay plan at the real estate investment trust’s (REIT) May 4 annual meeting. Proxy advisor Glass Lewis had recommended a vote against the plan, with investor groups such as Robeco deeming executive remuneration as “excessive” and bearing a “significant cost for shareholders.” Simon Property’s proxy statement revealed that its CEO, David Simon, had been granted a cash bonus of $28 million as part of his pay package, which marked the fourth-largest cash bonus paid to a CEO since Insightia Compensation records began in 2013.
DocuSign also encountered stiff opposition to its compensation plan with the e-signature tech company’s advisory vote facing almost 84% opposition at its May 31 annual meeting. Cain Hayes, who sits on the company’s compensation committee, was also ousted from the board after he encountered 50.2% opposition to his reelection. Glass Lewis had recommended a vote in favor while the board had argued that he possessed attributes that qualify him to serve “including his substantial experience in managing and growing large complex organizations.”
In its first annual meeting since acquiring Duke Realty in June 2022, ProLogis saw almost three-quarters of its shareholders move to reject its executive compensation plan. The proposal, which received 72.6% opposition at the REIT’s May 4 annual meeting, agitated investors with concerns over the complexity of the long-term incentive (LTI) programs, the “skyrocketing” value of outperformance awards for Chairman and CEO Hamid Moghadam and other executives, and the rigor of LTI and ProLogis Outperformance Plan (POP) goals. A number of investors also argued that Moghadam’s compensation was out of line with company performance. Moghadam, who has been company CEO since late 2012, saw his granted compensation jump from $24.9 million in 2021 to $48.2 million in 2022.
CME Group’s “say on pay” proposal fell short of majority support for the second year running, encountering an almost 68% rebellion from its investor base at the financial derivatives exchange’s May 4 annual meeting. Yet this was still an improvement on its 2022 plan, where executive pay was only supported by 23% of shareholders. Pennsylvania Public School Employees’ abstained from the 2023 vote due to an insufficient response by the company to address its previous failures. CME’s CEO Terreance Duffy saw a marginal increase in his granted compensation from 2021 to 2022. However, his realized compensation rose by over 22% to $22.3 million, accounting for 64% of all executive compensation in that period. CME’s compensation committee also felt dissent from shareholders with committee Chair Charles Carey facing over 45% opposition to his reelection, while its members all faced upwards of 30% opposition. Carey was criticized by Legal & General Investment Management (LGIM) over CME’s remuneration practices, as well as a perceived lack of independence due to his excessive board tenure.
As the above pay revolts illustrate, shareholders are becoming increasingly unforgiving of outsized CEO payouts. Amid rising inflation and market turmoil, companies need to clearly outline why pay raises or significant bonus payouts are justified and ensure executives are compensated in line with broader stakeholders.
Pay plans yet to be decided
While average opposition to “say on pay” has held steady in the first five months of the year, many companies have yet to put their plans to a vote as proxy season continues.
SWK Holdings faced almost 90% opposition to its “say on pay” plan in 2022, while its then chairman and CEO, Winston Black, also faced stiff opposition at over 84% at the August 10 meeting. Shareholders took issue with legacy arrangements in the remuneration policy that meant that an executive could receive severance even if they terminated their employment voluntarily, with or without good reason. Black received a payment of $1.2 million upon his departure from the company in September 2022. Calvert Research and Management also criticized the company for excessive payments made to Black in its rationale for voting against the “say on pay” proposal, citing that his compensation was four times greater than the average NEO. According to disclosures in SWK’s 2023 proxy, new CEO Jodye Staggs’ granted compensation for 2022 was 37.3% lower than his predecessor’s in 2021, falling from $2.4 million to $1.5 million.
Almost 88% of Western Digital Corporation shareholders used their vote to communicate their dissatisfaction with remuneration at its November 2022 annual meeting. They were backed by influential proxy advisors Institutional Shareholder Services (ISS) and Glass Lewis. Active Super cited concerning pay practices, while Fidelity International raised concerns over a misalignment between pay and performance.
Mercury Systems faced an 80% shareholder revolt at its October 2022 annual meeting when it put its pay plan to a vote. ISS and Glass Lewis recommended a vote against. Asset management giant BlackRock followed the advice and cited pay not aligned with performance and peers. Legal &and General Investment Management (LGIM) raised concerns that awards are permitted to vest for below the median relative performance which therefore fails its pay for performance hurdle.
Sorrento Therapeutics will also be hoping for a better outcome at its 2023 annual meeting after facing over 77% opposition to its compensation plan in 2022. Glass Lewis had advised a vote against and investor groups that followed suit cited concerns over salary increases not linked to material changes in the business or in the role and responsibilities of executive directors. BlackRock said incentive arrangements were poorly structured.