ICS Highlights Eight Key Trends from the 2017 U.S. Proxy Season
ROCKVILLE, Md. (September 6, 2017) – ISS Corporate Solutions, Inc. (ICS), a leading provider of compensation and governance tools and advisory services to help companies improve shareholder value and reduce risk, today detailed eight key developments over the course of the U.S. proxy season.
These key developments, with commentary, are detailed below:
Shareholder proposals seeking more disclosure on climate change preparedness fared well in 2017, and three such proposals—at Exxon Mobil, Occidental, and PPL Corporation—received majority shareholder support.
“The shareholder awakening on climate change was the most significant story of the 2017 proxy season,” said Peter Kimball, Executive Director and Head of Advisory and Client Services at ICS. “Expect these proposals to get wider play in 2018, as shareholders exert more pressure on companies against the backdrop of the U.S. pulling out of the Paris Accords.”
As in 2015 and 2016, proxy access proposals topped the chart of the most commonly filed shareholder proposals, and most of the proposals to adopt proxy access that went to a vote received majority support.
“The number of proxy access proposals that appeared on the ballot fell from 84 in 2016 to 54 so far this year, because proponents and companies more frequently coordinated on the withdrawal of these proposals after negotiating the terms of relevant bylaws on the issue,” said Kimball.
Taken as a group, political contributions and lobbying proposals were the second most frequently filed shareholder proposals in 2017, and saw a slight uptick from 2016.
“It comes as no surprise that companies’ political activity continued to be a primary focus for shareholders this year,” said Kimball. “Shareholder proposals on companies’ political activity have been common since Citizens United, and show no signs of letting down.
The 2017 proxy season saw a spike in the number of directors receiving low levels of support from shareholders; 102 directors at S&P 500 companies, or 2.4 percent, received less than 80 percent shareholder support during proxy season, the highest figure since 2011 and a substantial increase from 57, or 1.3 percent, during the 2016 proxy season.
“The advent of mandatory say-on-pay proposals in 2011 deflected a lot of negative votes away from directors, but this year shareholders shifted their voting focus back to the boardroom at large-cap companies,” said Kimball. “The trend was more muted at smaller companies, but vote outcomes at large companies can be bellwethers for the rest of the market.”
Median CEO pay at S&P 500 companies rose by 7 percent, according to proxy disclosures filed this proxy season.
“The jump in fiscal 2016 CEO pay followed a relatively flat year in 2015,” said Kimball. “The increased use of performance-based pay – more than 50 percent of the median CEO pay in the S&P 500 is now performance-based – and strong financial and market performance in 2015 and 2016 contributed to higher pay.”
2017 was the second time that most companies held votes on the frequency of say-on-pay proposals, after the Dodd-Frank requirement to enable shareholders to vote on say-on-pay frequency at least every six years went into effect for 2011 meetings.
“This year’s say-on-pay frequency votes underscore institutional investors’ increased focus on compensation and engagement; whereas shareholders preferred annual say-on-pay votes at 80 percent of companies in 2011, they preferred annual votes at well above 90 percent of companies this year,” said Kimball. “By the same token, shareholders chose triennial say-on-pay votes less often, from nearly 20 percent of companies in 2011 to only 8 percent in 2017.”
Despite the increased shareholder interest in annual say-on-pay votes, the median say-on-pay vote result at Russell 3000 companies remained quite high—96.4 percent, a slight uptick from 2016’s median outcome of 96.1 percent.
“Even compensation professionals are sometimes surprised by the levels of support that makes their company an outlier—you might think that receiving 78.5 percent support on your say-on-pay proposal is a good thing, but it means you’re in the bottom tenth of all outcomes,” said Kimball. “Similarly, companies receiving support from a seemingly strong 89.5 percent of votes are actually in the bottom quintile.”
Shareholder rights continue to receive focus. One example is companies’ steady march from plurality vote standards in uncontested director elections to majority vote standards.
“We are rapidly approaching majority-majority status—47 percent of companies in the Russell 3000 now maintain a majority vote standard in director elections, up from 37 percent in 2014 and from less than 20 percent in 2011,” said Kimball. “This remarkably swift trend is the result of combining external and internal forces—continued shareholder pressure, and an increased reliance in the boardroom on governance benchmarking.”