Many U.S. public corporations experienced relatively little immediate impact from the first say-on-pay proxy season; however, most companies are either planning or considering changes to their executive pay-setting process and overall preparations for 2012's proxy season, according to a new survey by Towers Watson.
Seventy-nine percent of respondents say say-on-pay either had no or only a little to moderate impact on their focus for the 2011 proxy season, the survey shows, while 72 percent of respondents plan to dedicate approximately the same effort next year.
Despite that, 71 percent of respondents that received much resistance to their programs plan to dedicate more time and effort next year, the survey reveals. Sixteen percent of respondents faced less than 80 percent of shareholder support, and 41 percent of respondents that faced at least one proxy advisory firm "against" recommendation also anticipate a larger effort next proxy season.
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"Most companies are breathing a sigh of relief now that the proxy season is over," says Doug Friske, global head of Towers Watson's Executive Compensation consulting practice. "The same, however, can't be said for many companies that received an 'against' recommendation from proxy advisory firms or failed to win the support of at least 80 percent of the shareholder votes cast on their say-on-pay resolutions.
"The survey findings, along with our consulting experience, suggest that these companies are taking shareholder views quite seriously and plan to respond in some way."
Overall, 82 percent of respondents tried at least one action to successfully earn a positive say-on-pay vote, with the most common method being directly reaching out to shareholders at 56 percent. Communicating with proxy advisors came in at 53 percent, and hiring a proxy solicitor came in at 40 percent. Thirty-two percent of respondents say they made adjustments to their pay programs.
Although the majority of companies that have much shareholder support for their executive pay programs, 91 percent are planning or considering at least one change in their pay-setting process or preparations for the 2012 proxy season. Forty-four percent of respondents plan to conduct more analyses on the connection between pay and company performance and have already made program modifications, such as severance provisions, change-in-control arrangements and perquisites.
At 41 percent, slightly fewer respondents anticipate dedicating more attention to preparing the Compensation Discussion and Analysis while 17 percent plan to adjust their core compensation programs, such as base pay and incentives.
"We believe companies need to start thinking now in a proactive way about their strategy for next year's proxy season," says Todd Manas, a director in Towers Watson's executive compensation practice. "Even companies that won shareholder approval this year can't assume they'll receive a similar outcome next year.
"Confirming that a strong pay-for-performance linkage exists, reaching out to shareholders and improving their overall communication about how their company pays for performance will be critical, especially as advisory firms use their own measures for how executive pay ties to company performance."
Additionally, 64 percent of respondents are only moderately concerned about the U.S. Securities and Exchange Commission implementing the Dodd-Frank requirement to disclose executive pay compared to company performance. Twenty percent of respondents have already offered supplementary disclosure information in the CDA regarding the coalition between executive pay and performance. They plan on continuing to do so when the Dodd-Frank requirement becomes mandatory.
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