A new research paper has been released that looks at the influence of proxy advisors in the 2011 Say on Pay votes.  The paper, Shareholder Votes and Proxy Advisors: Evidence from Say on Pay, by Yonca Ertimur (Duke University), Fabrizio Ferri (Columbia University), and David Oesch (University of St. Gallen), reviewed the 1,275 proxy reports issued by ISS and Glass Lewis with respect to the S&P 1500 firms in 2011. The authors found that ISS issued Against vote  recommendations at 11.3% of the firms and Glass Lewis did so for 21.7% of the firms.

The researchers found that a negative vote recommendation from ISS (Glass Lewis) on SOP was associated with 24.7% (12.9% for Glass Lewis) more votes against the proposal. Researchers found that when both ISS and Glass Lewis recommended an against vote on SOP, the dissent was higher by 37.9%.

Researchers found that investors do not appear to mechanically follow the proxy advisors’ vote recommendations. Instead, investors appear to use the information in the proxy advisors’ reports to decide which SOP recommendations to support.

Researchers also found that 36% (52 of 144) of the firms with a negative SOP vote recommendation from ISS reacted by filing additional documents with the SEC before their annual meetings. 40 firms voiced their disagreement with the ISS rationale for its recommendation; researchers found that such tactics did not lead to either a change in ISS’s vote recommendation nor in lower voting dissent. Eight firms changed the compensation provision criticized by ISS, causing ISS to revise its vote recommendation and resulting in lower voting dissent. The other four firms provided additional disclosure (and obtained a revised, favorable recommendation in 2 cases).

The research paper also looks at the SOP frequency vote recommendations, as well as vote results, the proxy advisors’ analysis of company compensation plans/programs, and the way shareholder votes responded to the vote recommendations of the proxy advisors.

The full research paper can be found at SSRN at:



On March 22, 2012, United Technologies Corp. filed additional proxy materials urging shareholders to ignore the ISS vote recommendation against its say on pay vote. UTX found fault with the ISS peer group – which included companies outside its industry group – and its Total Shareholder Return (TSR) methodology, which does not adjust for near-term volatility resulting from extraordinary events.  The entire filing can be found at:



On March 6, 2012, Jones Day issued an alert about “forgotten” say-on-pay frequency disclosures that is worth a read.  The article is available  at:



Ed Hauder participated in the last webcast of Equilar’s 2012 Pay-for-Performance Webcast series, Reviewing Pay-for-Performance Disclosures in Early Proxies, on Wednesday, March 7, 2012.

Equilar’s webinar on “Early Disclosure and Say-on-Pay” featured Charlie Tharp of the Center on Executive Compensation and Ed Hauder of Exequity. Below are the links to both the replay and the slides.


For the 2012 proxy season, we’ve seen a new Pay-for-Performance (P4P) analysis introduced by ISS (Institutional Shareholder Services).  As we expected, companies are willing to come out swinging against the ISS negative say-on-pay (SOP) vote recommendations as a result of its new P4P analysis.  So far, the following companies have filed additional proxy materials to counteract such negative vote recommendations from ISS:

In several cases, these supplemental materials addressed more than just the SOP vote recommendation from ISS.  The summaries below capture the main points raised against the negative SOP vote recommendation issues by ISS.

The Walt Disney Company

DIS found that “ISS has again substituted its opinion for the studied analysis and judgment of the Board as to the compensation that was appropriate to secure Mr. Iger’s services for the Company through mid-2016.” DIS attacks the peer group selected by ISS as well as the return on DIS stock during the tenure of its CEO compared to that of the S&P 500 index and four media company peers. DIS indicates that its CEO’s pay was completely in line with the compensation paid to the CEOs of its five media peers. DIS also emphasized that no up-front grants were given to the CEO to extend his tenure as CEO and that 90% of the potential value of his compensation package is in the form of performance-based bonus, performance-based RSUs and options.

National Fuel Gas Company

NFG filed a letter it sent to ISS in the first filing indicating the flaws in the application of ISS’s P4P methodology. NFG indicates that only 3 of its 13 ISS-identified peers had 2011 CEO compensation available, so the rankings used were therefore flawed. NFG also called into question ISS’s use of GICS group to establish the peer group, indicating that its shareholder do not invest in it only because of its utility business, but instead because of its E&P business segment. NFG states that a peer group comprised of both gas distribution and oil and gas exploration and production companies would have been more correct. NFG then includes charts illustrating 1- and 3-year TSR returns for the groups it mentioned. Finally, NFG indicates that 2011 was anomalous.

In its secondary filing, NFG strove to demonstrate that its CEO’s pay was aligned with a proper peer group.  It included total direct CEO compensation for a peer group and then showed the TSR for those peers. Finally, in support of its statement that its CEO’s compensation was in alignment with the interests of shareholders, it included a bulleted list of points.

International Game Technology

IGT lays out its case for why shareholders should vote in support of its SOP vote.  IGT cites that both Glass Lewis and Egan Jones have recommended “for” IGT’s SOP vote. IGT then details its performance during 2011 and how it performed against the ISS peers. Finally, IGT details how its approach to executive compensation emphasizes performance.

Parametric Technology Corporation

PMTC filed talking points for telephone calls made to select stockholders regarding its SOP vote and ISS’s negative vote recommendation. PMTC indicated that its new CEO has delivered outstanding results, that his compensation is heavily weighted toward performance-based compensation and closely aligned pay with performance, attacks the ISS notion that its one-time performance-based equity grant constituted compensation for 2011 (indicating that it has to be earned through November 2013), that the performance metrics selected for the special equity award are challenging, and that it has been responsive to shareholder concerns about compensation.

Piedmont Natural Gas Company, Inc.

PNY also filed what appears to be talking points used in reaching out to select shareholders to discuss the ISS SOP vote recommendation.  Among other things, PNY indicated that ISS overweighed one 3-year performance measure, ISS used companies that are not comparable to PNY as peers, and that ISS’s criticism of the non-performance-based equity as retention awards overlooked the importance placed on equity awards by the Compensation Committee as being critical to the Company’s overall compensation philosophy, ISS did not identify any other issues with PNY’s compensation program, and that Glass Lewis issued a positive SOP vote recommendation.

Qualcomm Incorporated

QCOM filed a letter that was sent to shareholders regarding its SOP vote which explained why the shareholders should ignore the negative ISS vote recommendation and instead vote in favor of QCOM’s SOP vote. QCOM attacked the methodology used by ISS in compiling the peer group used, especially since the ISS methodology failed to take into account that QCOM is one of the largest companies in the U.S. by market capitalization. QCOM then includes more detailed information regarding its size under market capitalization, net income, net income margin and revenues against the S&P 500 Index, the peer group utilized by QCOM and the one selected by ISS to emphasize the fact that it was clearly at the top of the ISS peer group in terms of size. QCOM then details how it performed in 2011, how it had been sensitive to ISS’s guidelines and compensation best practices, and illustrates how it makes extensive use of performance-based compensation. Finally, QCOM details the compensation best practices that it has implemented. QCOM then included estimated results of ISS’ CEO P4P tests under its FY11 peer group and more detailed size comparison information.

Actuant Corporation

ATU filed supplemental information on its SOP vote as a result of both ISS and Glass Lewis recommending against it. ATU discussed performance in 2011, and discusses why the Company and Board feel the Company has an executive compensation program that is well-aligned with both shareholders’ interests and its financial results. ATU cites a study by its compensation consultant as refuting the findings by ISS and Glass Lewis. The study looked at the relationship between pay opportunity and realized pay of the CEO compared to ATU’s peer group. ATU then described its robust insider ownership policies, holdings and procedures. ATU indicates that both ISS and Glass Lewis misstated ATU’s CEO’s total compensation, stemming largely from the value ISS and Glass Lewis attached to stock options. ATU indicates that neither ISS’s nor Glass Lewis’s analysis acknowledged that the equity awards granted in 2011 actually had declined in value (quite substantially) (by about 71%). ATU states that its NEOs did not receive salary increases during 2009, 2010 or 2011, and the NEOs actually took a voluntary 10% reduction in salary for over a year during that time period. ATU then highlights why its executive pay program embodies P4P.

Even though ATU laid out its case for why its pay program is performance-based, a majority of ATU’s shareholders did not support ATU’s SOP vote — 46.4% For, 53.0% Against and 0.6% Abstain. (Form 8-K, filed January 17, 2012,  http://www.sec.gov/Archives/edgar/data/6955/000119312512013766/d281677d8k.htm). ATU’s is the first failed SOP vote for 2012.


SEC Guidance on Say-on-Pay Proposals

On February 17, 2012, in News, Proxy Disclosure, Say on Pay, by Ed Hauder

On February 13, 2012, the SEC gave everyone a nice pre-Valentine’s Day present, a new C&DI on say on pay proposals.  I thought it might be helpful for folks to see the current C&DIs on the topic, so here they are, the one released this week is listed at the bottom.

Question 169.04

Question: Must the vote on say-on-frequency, as required by Rule 14a-21(b), be in the form of a “resolution”?

Answer: No. [Feb. 11, 2011]

Question 169.05

Question: Is it permissible for the say-on-pay vote to omit the words, “pursuant to Item 402 of Regulation S-K,” and to replace such words with a plain English equivalent, such as “pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the compensation discussion and analysis, the compensation tables and any related material disclosed in this proxy statement”?

Answer: Yes, it is permissible to use a plain English equivalent in lieu of the words, “pursuant to Item 402 of Regulation S-K.” [Feb. 11, 2011]

Question 169.06

Question: Is it permissible for the say-on-frequency vote to include the words “every year, every other year, or every three years, or abstain” in lieu of “every 1, 2, or 3 years, or abstain”?

Answer: Yes. [Feb. 11, 2011]

Question 169.07

Question: On its proxy card and voting instruction form, how should a company describe the advisory vote to approve executive compensation that is required by Exchange Act Rule 14a-21?

Answer: The following are examples of advisory vote descriptions that would be consistent with Rule 14a-21’s requirement for shareholders to be given an advisory vote to approve the compensation paid to a company’s named executive officers, as disclosed pursuant to Item 402 of Regulation S-K.

    • To approve the company’s executive compensation
    • Advisory approval of the company’s executive compensation
    • Advisory resolution to approve executive compensation
    • Advisory vote to approve named executive officer compensation

The following is an example of an advisory vote description that would not be consistent with Rule 14a-21 because it is not clear from the description as to what shareholders are being asked to vote on. Shareholders could interpret this example as asking them to vote on whether or not the company should hold an advisory vote on executive compensation, rather than asking shareholders to actually approve, on an advisory basis, the compensation paid to the company’s named executive officers.

    • To hold an advisory vote on executive compensation

[Feb. 13, 2012]


Please click on the graphic below to bring up a chart showing the companies that have received less than 50% FOR support on their Say on Pay (SOP) votes or that disclosed that their SOP proposals did not pass so far in 2011. Note that some of these companies have reported that their SOP votes passed (most likely because abstentions were not counted).


Please click on the graphic below to bring up a chart showing the companies that have received less than 50% FOR support on their Say on Pay (SOP) votes or that disclosed that their SOP proposals did not pass so far in 2011. Note that some of these companies have reported that their SOP votes passed (most likely because abstentions were not counted).


Please click on the graphic below to bring up a chart showing the companies that have received less than 50% FOR support on their Say on Pay (SOP) votes or that disclosed that their SOP proposals did not pass so far in 2011. Note that some of these companies have reported that their SOP votes passed (most likely because abstentions were not counted).


Speaking at NASPP Pre-Conference on November 1, 2011

On October 27, 2011, in Speeches, by Ed Hauder

Ed will co-present with Fred Whittlesey at the NASPP’s Practical Guide to Performance-Based Awards conference on Plan Design and Implementation next Tuesday, November 1, 2011 at the Hilton San Francisco.  For more details, see this page on the NASPP website: