We have been monitoring proxy statement disclosures made by S&P 500 companies pursuant to Item 402(b)(1)(vii) of Regulation S-K. That provision, which was added as part of the SEC’s say-on-pay rules, requires companies to discuss in the Compensation Discussion and Analysis (CD&A), “[w]hether and, if so, how the registrant has considered the results of the most recent shareholder advisory vote on executive compensation . . . in determining compensation policies and decisions and, if so, how that consideration has affected the registrant’s executive compensation decisions and policies.”
Of the 126 S&P 500 companies in our survey that, as March 14, 2012, had filed preliminary or definitive proxy materials that discussed the results of their 2011 advisory vote, 98% had received majority shareholder support for their 2011 advisory vote to approve their executive compensation. Our survey shows that companies are discussing their consideration of the results of the inaugural advisory vote in the following ways:
Every company in our survey stated that it had considered the results of the 2011 shareholder advisory vote on executive compensation. Two companies did not include the discussion in their CD&As, but those companies did discuss the 2011 advisory vote in other sections of their proxy statements.
A majority of companies (64%) discussed their consideration of their 2011 advisory vote under a separate caption in the CD&A.
Most companies (85%) stated the percentage level of support for their 2011 advisory vote.
With respect to the requirement to state how consideration of the 2011 advisory vote on executive compensation has affected executive compensation decisions and policies:
All of the companies whose shareholders did not approve their executive compensation stated that they had made changes in response to the shareholder advisory vote.
16% of the companies whose shareholders approved their executive compensation stated that they had made changes in response to the shareholder advisory vote. This percentage has been increasing in recent weeks as more proxy statements are being filed. The companies making this disclosure generally received lower shareholder votes for their executive compensation (ranging from just over 50% to about 93% support, with a median of 70% support) than companies that did not announce changes in response to a favorable vote.
A further 11% of companies whose shareholders approved their executive compensation stated, when discussing their 2011 advisory vote, that they had made changes to their compensation decisions or policies but did not state whether those changes were a result of their consideration of their 2011 advisory vote. o The level of shareholder support for the executive compensation at companies that did not disclose changes to their executive compensation policies and decisions ranged from about 66% to more than 99%, with most of these companies reporting shareholder support between 90% and 100%.
About 46% of companies that did not disclose changes to executive compensation policies in response to a favorable advisory vote stated that shareholder support of their advisory vote was “an endorsement” (or similar language) of the company’s compensation policies.
As reflected by the statistics above, in addressing how consideration of the 2011 advisory vote has affected executive compensation decisions and policies, approximately 84% of the companies that received majority shareholder support for their 2011 advisory vote did not disclose changing their executive compensation policies and decisions as a result of the 2011 advisory vote. Of those companies:
Approximately 45% of the companies affirmatively stated that after consideration of their 2011 advisory vote they did not change their executive compensation policies and practices.
Approximately 30% of the companies stated that after consideration of their 2011 advisory vote they determined to continue or to maintain their executive compensation policies or practices.
Approximately 25% of the companies did not affirmatively state whether or not their consideration of their 2011 advisory votes affected the company’s executive compensation decisions and policies. This percentage includes those companies that, when discussing their 2011 advisory vote, stated that the company made changes to compensation policies or practices in 2011, but did not expressly state that those changes reflected how consideration of the 2011 advisory vote affected the company’s executive compensation decisions and policies. However, other companies either are not expressly addressing the issue, or are being more subtle in addressing how consideration of their 2011 advisory vote affected the company’s executive compensation decisions and policies.