That’s the title of a new report from ISS on the factors that contributed to significant investor opposition during last year’s say-on-pay votes at U.S. companies. From the summary:
With the advent of market wide say-on-pay votes in the U.S. last year, much focus has been placed on the role of total shareholder return (TSR) in determining shareholder support or opposition to the non-binding management resolutions. Yet, while TSR is widely seen as the most critical driver of votes, CEO pay magnitude also plays a role, according to a new ISS white paper. In fact, when looking at both indices and sectors where a disproportionate number of companies saw less than 70 percent support for their say-on-pay resolution, we found that TSR alone likely cannot account for the high level of opposition, given performance in some cases was at or above median TSR levels for more highly supported peers.
Backing the assertion that pay magnitude resulted in higher levels of opposition during the inaugural year of say-on-pay, our analysis found:
CEO pay disparities are stark when isolating for companies that received less than 70 percent on 2011 say-on-pay resolutions compared with those that saw support in excess of 95 percent.
For example, the average CEO bonuses for S&P 500 firms with low MSOP support stood at $3 million, as compared with $1.1 million at higher supported peers.
The value of “all-other-pay,” including perks and exit compensation, for CEOs at S&P 500 companies with low MSOP support was 138 percent greater than that for high-support peers, while option grant values at the low-support firms were 127 percent greater.
By industry, poorly supported energy sector firms reported bonuses that were 664 percent that of their highly supported peers, and stock grants that were valued 338 percent more.
From the Summary:
The trend toward greater scrutiny of pay magnitude will continue as MSOP* resolutions move into their second year in the U.S. Sustaining and driving the trend will be continued media and political focus on “excessive” CEO pay, as well as regulatory developments, such as forthcoming rule making by the U.S. Securities and Exchange Commission on Dodd-Frank Act provisions calling for issuers to disclose CEO pay as a ratio of that of average employee pay.
Moreover, investors appear far more ready in 2012 to challenge and oppose significant payments under their right to approve or reject non-binding measures on both pay and golden parachutes.
Taken collectively, issuers should be better prepared to justify significant awards to their shareholders in the run-up to the 2012 annual meeting season.
*management say on pay
Parsing The Vote: CEO Pay Characteristics Relative to Shareholder Dissent. Earlier white papers from ISS on compensation issues.
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