So far in the 2012 proxy season, it had been looking like all the companies that had SOP votes “fail” last year were coming back this year with significantly positive votes in support of their SOP proposals this year, see the April 25, 2012 Blog post. Since then, the support for several SOP votes at companies with 2011 SOP failures have come in under 70%, with one SOP vote that failed to garner more than 50% support:
- Cogent Communications Group, Inc. – 68.45%
- Cooper Industries plc – 29.36% (“failed” SOP)
- Janus Capital Group Inc. – 61.38%
All of these companies will come under closer scrutiny by ISS next year as a result. I imagine that Cooper Industries, with 2 successive years of failed SOP votes (depending on how you count abstentions), will have a difficult time with its shareholders and may have to consider making some substantial changes in order to turn things around next year.
The chart below tracks the votes that have been recorded so far at companies that had SOP votes fail to secure a majority of the votes in their 2011 SOP votes (click on the graphic to expand it to readable size).
Since April 3, 2012, a few more companies have filed additional proxy materials to support their SOP votes (click on the company name to be taken to the materials they filed with the SEC):
- April 4, 2012: United States Steel Corporation filed material to refute a negative ISS SOP vote recommendation, primarily by objecting to the ISS peer group and offered its own P4P analysis using the company’s own peer group.
- April 5, 2012: Life Technologies Corporation filed material to refute a negative ISS SOP vote recommendation, objecting to the peer group ISS used, offering a P4P analysis using the company’s own peer group as well as raising the total returns the company has enjoyed versus CEO compensation.
- April 12, 2012:
- Janus Capital Group filed a lengthy presentation that walks through what it had done to address shareholder concerns expressed through the failed 2011 SOP vote as well as why it believed pay and performance were aligned and thus why shareholders should not follow the ISS vote recommendation against the SOP vote.
- NCR Corporation filed materials to refute a negative ISS vote SOP recommendation. The materials laid out the company’s arguments that it did align pay with performance and offered a realized pay chart to back up that assertion, that the company’s CEO was an outstanding leader who deserved an opportunity to earn above the 75th percentile compared to the company’s peers, that it is in the interests of shareholders to retain the CEO and that ISS’s analysis was flawed because it underestimates the company’s operating results.
- April 13, 2012: NYSE Euronext filed materials to oppose the negative SOP vote recommendation issued by certain proxy advisory firms. The company argued that its core financial performance was strong and that compensation should be evaluated against an appropriate peer group. The company then detailed recent compensation actions which show P4P alignment and detailed additional best practices it is following.
- April 16, 2012:
- Consol Energy Inc. filed materials to oppose a negative ISS SOP vote recommendation. The materials detailed financial performance in 2011, compared key metrics to those of peers, detailed the actions it took in response to its 2011 SOP vote and detailed why it believes ISS’s analysis is fundamentally flawed in a number of respects.
- Health Care REIT, Inc. filed materials to oppose the negative SOP vote recommendations issued by ISS and Glass Lewis. The company details its performance, describes why the CEO received a $1 million equity grant (to extend his employment agreement), takes on the ISS analysis and then offers a comparative analysis for shareholders.
- April 17, 2012:
- Hess Corporation filed materials to oppose the negative SOP vote recommendations issued by ISS and Glass Lewis. The company details the actions it took to align P4P in 2011, indicates that ISS and GL did not give proper credit to its new relative TSR plan, and argues that ISS’s peer group is flawed and that ISS’s stock option valuations are misleading.
- Laboratory Corporation of America Holdings filed materials to oppose a negative ISS SOP vote recommendation (noting that Glass Lewis supports the SOP vote this year as it did last year). The materials pick up some discrepancies in the ISS Proxy Report (SOP against recommendation when Compensation GRId subscore had a “low” concern, etc.), and then argued that the ISS peer group was flawed and that if ISS had used the company’s own peer group it would have reached a different conclusion.
- Marriott International, Inc. filed materials to oppose a negative ISS SOP vote recommendation (and noted that Glass Lewis issued a “For” vote recommendation on the SOP vote). The materials argue that ISS fails to adequately recognize the favorable impact on shareholder value of the timeshare spinoff and argues that the company’s programs are tied to long-term value.
On April 2, 2012, two companies filed additional proxy materials used to support their Say on Pay (SOP) votes:
- Associated Banc-Corp. filed a presentation that walked through the recent changes to their compensation programs and looked at the company’s stock ownership guidelines and the employment agreement with its CEO. ASBC doesn’t come out and directly indicate why it is filing this presentation, but I presume this is an effort to counteract a negative vote recommendation from a proxy advisory firm. The filing can be found by clicking HERE.
- Adobe Systems Inc. filed a letter to stockholders that sought to rebut a negative ISS vote recommendation on its SOP vote. Specifically, ADBE argues that ISS uses an inappropriate peer group, ISS’s stock option valuations are higher than those of ADBE, that ISS ignores realizable pay in its analysis, and that the peer group data used is stale. ADBE then details the changes it made to its compensation program for 2012. The filing can be found by clicking HERE.
On April 3, 2012, two more companies filed such additional proxy materials:
- C. R. Bard Inc. seeks to rebut a negative ISS vote recommendation on its SOP vote. BCR argues in its filing that it achieved solid operating performance in 2011, that the ISS peer group methodology led to faulty conclusions with respect to BCR, addresses the criticisms ISS had of its CEO’s pay and pay design (including performance goals), and concludes with a list of the things that BCR had done in response to shareholder concerns. The filing can be found by clicking HERE.
- Huntington Bancshares Inc. also sought to rebut a negative ISS vote recommendation on its SOP vote. Apparently HBAN failed ISS’s 5-year pay for performance (P4P) analysis under its Pay-TSR Analysis (PTA) test. HBAN indicates that it believes the results of this test are inaccurate because (1) the 5-year period looked at includes the prior CEO’s compensation, not just the company’s performance since its new CEO joined in January 2009, and (2) ISS’ methodology over-estimates the value of HBAN’s stock options. Additionally, HBAN took issue with the fact that ISS does not view stock options as performance-based and ISS failed to take into account HBAN’s compensation philosophy and compensation program best practices. The filing can be found by clicking HERE.
The Conference Board, NASDAQ and the Rock Center for Corporate Governance at Stanford University conducted a survey and found that proxy advisory firms have a substantial impact on the design of executive compensation programs. The Conference Board put out a Director Notes titled The Influence of Proxy Advisory Firm Voting Recommendations on Say-on-Pay Votes and Executive Compensation Decisions, by David F. Larker, Allan L. McCall, and Brian Tayan in March 2012 that summarized the findings of that survey. The report looks at the influence of ISS and Glass Lewis vote recommendations. The Director Notes issue is available at: https://www.conference-board.org/retrievefile.cfm?filename=TCB-DN-V4N5-12.pdf&type=subsite
Earlier this month, ISS released its own research that looked at the 2011 Say on Pay votes, Parsing The Vote: CEO Pay Characteristics Relative to Shareholder Dissent, by Subodh Mishra. This research paper looked at CEO pay and total shareholder returns (TSR) and how those related to the SOP votes achieved at companies during 2011. In particular, the paper compared companies that had SOP support of 95+% to those that did not and found that those outside the 95+% SOP support group had CEOs receiving substantially greater pay than those in the 95+% group.
The research paper is available at: