This content is from: Culture

Surprise! CEO Pay Disclosures Haven't Altered Shareholder Support

Shareholder approval of executive compensation remains high this year despite expectations that newly mandated disclosures on CEO pay ratios would result in investor revolt, according to new research from Broadridge Financial Solutions and PwC.

As publicly-traded companies begin revealing for the first time how much their chief executive officers make relative to employees, shareholders remain supportive of their big paychecks.

Eighty-nine percent of shareholders voted in favor of companies' say-on-pay proposals in the first half of this year, a level of support that has remained stable since 2014, according to a report Wednesday from Broadridge Financial Solutions, a shareholder communications provider, and PricewaterhouseCoopers. The Securities and Exchange Commission recently began requiring public companies to disclose the ratio between their CEO’s pay and the median compensation of their employees, a rule mandated under the Dodd-Frank Wall Street Reform and Consumer Protection Act.

“There was a lot of gnashing of teeth about it,” said Chuck Callan, senior vice president of regulatory affairs at Broadridge. There was a lot of opposition. As it turns out, investors are able to handle the numbers.”

The CEO pay ratio requirement went into effect in the U.S. for companies whose fiscal year started on or after January 1, 2017, according to Equilar, a board recruiting and executive compensation consulting firm. As a result, many companies ended up reporting the ratio for the first time in 2018.

Equilar said in a February report that the median CEO-to-employee pay ratio was 140 to one, with ratios varying widely depending on the company’s size and the number of employees.

“Notably, shareholder support for say-on-pay proposals at companies where the CEO pay ratio was disclosed was the same, on average, as it was at companies that were not required to disclose the pay ratio,” Broadridge and PWC said in their report.   

[II Deep Dive: Fund Firms Turn Up the Heat on Executive Pay — and It’s Working]

According to Callan, of the 4,090 shareholder meetings the report analyzed, 2,342 had say-on-pay proposals as a part of the proxy voting. The study found that just 287 say-on-pay proposals failed to receive the support of at least 70 percent of shareholders voting, while 93 failed to receive majority support. 

“I think there's a misperception that proxy voting is akin to a political election, and it’s not,” Callan said by phone. In a public election, if somebody gets 51 percent of the vote, they win. With shareholder meetings, these are your owners, you want basically everybody to be happy.”

If a company fails to receive the support of more than 70 percent of shareholders, proxy advisory firms like Glass Lewis or Institutional Shareholder Services will be inclined to issue a recommendation against a company's executive compensation plan the following year, Callan said. That's why companies want to get as close to 100 percent of their shareholders on board with pay packages as possible, he said.

According to Callan, there could be an explanation for such a small difference between shareholder voting on say-on-pay proposals at companies that disclosed their pay ratios and those that did not: the bull market.

“Although the support has been consistent for pay, we’ve also had about five years of a rising market,” Callan said. “I have seen some correlations between shareholder support broadly of directors and management recommendations when there are rising valuations. If investors are doing well, they want management to be paid.”

The firms looked at how institutional and retail investors voted in proxy proposals during the first half of 2018, analyzing 4,090 public company annual meetings held between January 1 and June 30, according to the report.

Related Content