As reported in February, the Securities and Exchange Commission (SEC) issued final rules regarding the Dodd-Frank’s so-called say-on-pay provision in January. The new rule requires SEC filing companies to allow shareholders to have an advisory vote on executive compensation as well as an advisory vote on how frequently shareholders will vote on executive compensation. Shareholders now have the choice to vote on executive compensation in one, two, or three-year intervals. Now, two months later, Form 8-K filing statistics show that more companies are endorsing annual voting than earlier in the seasons, and shareholders are showing a clear preference for the annual voting schedule.
To date, 105 of the 173 large-cap S&P 500 firms have filed proxy materials endorsing annual say-on-pay voting, while only 56 have filed materials endorsing the triennial schedule. A mere seven firms have endorsed biennial voting, and five firms have made no recommendation. In addition, of the 417 Russell 3000 firms that have filed, 210 have supported annual voting – a marked increase from earlier Russell 3000 company filings – 182 advocated triennial voting, 13 recommended biennial voting, and 12 made no recommendation.
Shareholders are showing a marked penchant for annual say-on-pay voting. At large accelerated firms – public companies with a market value of at least $700 million – shareholders have voted for annual voting nearly 84% of the time. Furthermore, even if a company proposes triennial voting, shareholders have voted against that recommendation almost 80% of the time. Finally, when smaller reporting companies – those with a market value less than $75 million – have recommended annual say-on-pay voting, shareholders at all but one such company agreed with management’s proposal.
While most companies are clearly trending toward annual voting, some smaller reporting companies have found success in garnering support for triennial voting. However, the number of smaller reporting companies that have held say-on-pay votes remains low because of a provision in the act that allows such companies to delay including say-on-pay frequency votes in their proxy materials until 2013. Greg Schick of Sheppard, Mullin, Richter & Hampton LLP expects that, going forward, more smaller reporting companies will take advantage of this delayed start date.
Cite as: Michael Perez And the Winner is: Annual Voting on Executive Compensation, Berkeley Bus L.J.. Network (March 23, 2011), http://thenetwork.berkeleylawblogs.org/2011/03/23/and-the-winner-is-annual-voting-on-executive-compensation/