Say on Pay & Frequency Updates

By Amy Muecke

Mark Borges of CompensationStandards.com questions in his blog whether it's "worth" making a recommendation for triennial say-on-pay votes in light of the statistics showing that stockholders at most companies have supported annual say-on-pay votes despite such companies' recommendations for triennial votes.

To date, stockholders at a majority of the ~47 companies that have made triennial recommendations (and disclosed the results from their meetings) have supported annual – not triennial – votes. In each case where stockholders have supported a less frequent vote, the company has had a unique ownership structure such as a very high level of inside ownership, dual class capital structure, etc. The statistics to date overwhelmingly suggest that the frequency votes are being determined more by ownership structure than by each company's actual compensation practices or rationale presented for a less frequent vote.

That said, suggesting that it's not worth making a triennial recommendation may be an overly extreme and generalized answer to what should be a company-specific decision. Here are a few suggestions for companies considering triennial recommendations: <

• Analyze your stockholder base – absent significant inside ownership and without further effort, expect significant support for annual votes (especially absent significant stockholder outreach). Only a couple institutions have committed to support triennial votes.
• Determine whether/how much the vote results vis-à-vis the recommendation matters – is the board concerned about negative optics (or embarrassment) associated with strong support for annual say-on-pay votes despite its triennial recommendation? Alternatively, would the board rather "take credit" for recommending an annual vote if that's what the stockholders are going to support? As long as the board ultimately decides to adopt the frequency preference expressed by stockholders, perhaps the board's initial recommendation becomes less important from an optics perspective? And given that stockholders at most companies recommending triennial votes are supporting annual votes, perhaps no single company continues to stand out as much for this reason.
• Present a compelling rationale – make a compelling case for less frequent votes that is specific to the company (not boilerplate) in the proxy statement.
• Communicate with stockholders – many institutions' voting policies are to default to annual votes unless they're convinced otherwise. Convincing them otherwise requires a compelling rationale and significant outreach/communication. Consider whether it's worth the time, effort and expense necessary to fight this battle.
• Expect and prepare for stockholders to support annual votes – absent significant inside ownership, support for triennial votes is unlikely even with a compelling rationale and significant stockholder outreach. Make sure the board is prepared for this result – start discussing this likelihood and the proposed response early.

On a related note, here are the latest statistics prepared by Mr. Borges regarding the 248 frequency recommendations made to date (for those of you who have been tracking these statistics, last week there were 17 new filings – 7 with annual recommendations, 1 with a biennial recommendation and 9 with triennial recommendations):

• Annual: 79 ( ~32%)
• Biennial: 15 (~6%)
• Triennial: 142 (~57%)
• No Recommendation: 12 (~5%)

And finally, out of the ~70 companies that have reported results to date, still only two companies (Jacobs Engineering and Beazer Homes) have received less than majority support from stockholders on their say-on-pay proposals.

Please contact Amy Muecke at amuecke@cooley.com or 858/550-6058 with any questions.

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