The Conference Board Governance Center Blog


For Companies in the Gray Zone, Preparing for the Next Say-on-Pay Vote is Black and White

As I noted in my post about the 2012 ISS Policy Updates, in the lead up to the 2012 voting season, there has been a great deal of discussion about what happens with companies that garnered a of majority shareholder support for the company’s say-on-pay proposal, but not overwhelming majority support.  With ISS effectively drawing a bright line around those companies with “truly” passing say on pay votes (more than 70 percent), and those in the “gray” zone (those with more than 50 but less than 70 percent), we asked Yonat Assayag, a Partner with ClearBridge Compensation Group, for her firm’s view on how companies in this “gray zone” prepare for the 2012 say on pay vote.  Here is Yonat’s response . . .


As 2011 comes to a close, most public companies have by now had their shareholder advisory vote on their executive pay programs, known as “say-on-pay.”  Say-on-pay, an outcome of the Dodd-Frank Wall Street Reform and Consumer Protection Act, requires publicly-traded companies in the U.S. to hold shareholder advisory votes at least once every three years.

By and large, during this year’s proxy season, shareholders demonstrated overwhelming support of companies’ executive pay programs, providing 92% support on average. Through December 10, only 40 companies (less than 2%) failed their say-on-pay votes.  Undoubtedly, companies that failed say on pay have their work cut out for them as they prepare for their next say-on-pay vote.  On the other hand, companies that received a significant majority (e.g., greater than 70%) of shareholder votes in favor of their pay programs should generally expect their next say-on-pay vote to be smooth sailing, especially those companies at the higher end. 

Then there are those companies in the “gray zone” – companies that had more than 30% of their shareholders vote down their say-on-pay proposals while still receiving majority support.  These gray-zone companies can expect considerable focus on how they respond to their 2011 say-on-pay vote.  Most notably, according to ISS’ 2012 proxy voting policies, if a company’s previous say-on-pay proposal received support of less than 70% of votes cast, ISS will consider the company’s response to the prior say-on-pay vote when making vote recommendations on Compensation Committee members (or, in exceptional cases, the full board) and on the say-on-pay proposal. 

The first year of say-on-pay clearly demonstrated that a compensation program that fully supports the business, aligns with shareholder interests, and is sensitive to shareholder perspectives is critical to the success of any executive compensation program.  Companies in the gray zone can incorporate these key learnings into their compensation decision-making for 2012 by following these four steps:

  1. Establish a transparent link between pay and performance.Successfully demonstrating the pay/performance linkage is paramount to gaining majority support of the executive compensation program. In particular, companies should: 
    • Identify key measures of the company’s success;
    • Determine how to assess actual performance (for example, should performance be compared to budget, relative to peers or some combination of both?); and
    • Determine how to assess pay (for example, should it reflect grant values or realizable gains?), and understand how actual performance influences pay.
  2. Aim to minimize non-performance-based pay and enhance shareholder alignment. Companies that critically evaluate the business rationale for non-performance-based pay (such as perquisites and tax gross-ups) and use shareholder alignment tools (like stock ownership guidelines and anti-hedging policies) signal to shareholders that the company takes pay-for-performance seriously.
  3. Engage with shareholders. Proactive outreach to shareholders heavily influenced say-on-pay voting outcomes this proxy season. Talk with top investors early in the season to gain insights on their compensation governance policies and their views of the company’s pay practices. Pay attention to proxy advisory firms’ influence, but also know that an “against” recommendation does not always translate into a failed say-on-pay vote.
  4. Use proxy disclosure to your advantage. Companies that use proxy disclosure to tell their story and incorporate user-friendly formats, such as executive summaries and charts, can provide clear understanding of their compensation decisions and effectively demonstrate the pay and performance relationship.

Applying what has been learned from the first year of say-on-pay and making informed decisions on the executive compensation program going forward will result in effective compensation programs and positive say-on-pay outcomes in 2012 and beyond.

About the Guest Blogger:

Guest Blogger: Yonat Assayag, ClearBridge Compensation Group

Guest Blogger: Yonat Assayag, ClearBridge Compensation Group

Yonat Assayag is a partner at ClearBridge Compensation Group, an independent executive compensation consulting firm based in New York City. Assayag has more than 15 years of experience in compensation strategy and design, working with both publicly-traded and privately-held companies in a variety of industries. She can be reached at




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