Sodali survey shows investors differ in interpreting the meaning of say-on-pay votes
Four out of five institutional investors enthusiastically support the say-on-pay vote process, with 77 percent wanting annual votes and 66 percent preferring the votes be advisory rather than binding, according to a new survey from international consultancy Sodali.
‘The survey results and comments from respondents make clear investors view the say-on-pay vote as a highly successful corporate governance tool that provides insight into board independence and a means to promote dialogue on both governance and strategic issues,’ Sodali notes in the conclusions of the survey of 35 institutions in 10 countries with $13 tn in assets under management.
Eighty percent of investors rate the say-on-pay vote process as a four or five on a five-point scale, Sodali adds. Asked about the structure of say-on-pay voting, 54 percent of respondents say they prefer votes on general compensation rather than on specific elements of it.
‘Some investors view the vote as a means to rate board policies, while others dig deeper and examine the details of pay plans,’ Sodali writes. ‘Dialogue is clearly necessary to determine the meaning of say-on-pay vote results.’
When asked which factors they take into account during say-on-pay voting, the institutional investors surveyed give the highest level of importance to ‘performance criteria for short/medium/long-term incentives’.
This answer receives a rating of 4.48 out of a possible five among respondents, the highest score. ‘Company financial performance’ comes second, with a rating of 4.21, and ‘imbalance between long-term/short-term objectives’ comes third, at 4.03.
The Sodali survey also asked institutional investors about the amount of importance they place on reports and vote recommendations by proxy advisory firms.
More than half (57 percent) of respondents say they find such reports and recommendations ‘helpful’ but that they review the information independently and establish dialogue with the company.
According to 37 percent, advisory firms’ views are ‘informative only’ and the investors would ‘trust their analysis when strong misalignments with market practices are highlighted’. Only 5.7 percent of investors surveyed say they ‘fully trust the analysis and judgment’ of proxy advisers.
In the event of a very negative say-on-pay vote, 77 percent of institutional investors say the company should ‘commence outreach and dialogue with shareholders’ while 74 percent say the company should ‘revise remuneration policy’ and 42 percent say the company should write a letter of explanation.
