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I. Introduction

Since their conception in 2011, say-on-pay proposals have become a hot-button-issue for proxy advisors, politicians, corporate governance experts, and the public at large.

Though they are simply advisory votes on the previous year’s pay, a majority vote against the pay package can send a strong signal to the board of the shareholders’ dissatisfaction. In this piece, we argue that these proposals are passing at a far greater rate than one would expect given escalating public criticism of excessive CEO pay. Better say-on-pay outcomes can be achieved through:

1) Increased pass-through-voting

2) Independent and unconflicted proxy advisory services

II. Say-on-Pay Proposals Currently Receive Overwhelming Support

As of the end of the 2024 proxy season, only four companies in the S&P500 failed their say-on-pay vote. Given surmounting concerns from the public decrying excessive CEO pay packages and the fact that CEO pay continues to rise, this is surprising. The high success rate of these say-on-pay proposals indicates that shareholders’ concerns are likely not being heard during the voting process. To allow investors to voice their concerns, many asset managers have introduced pass-through-voting to a portion of their investors. The largest asset managers have included Egan-Jones’ Wealth-Focused Policy as an option.

III. How should executives be paid?

In contrast to these say-on-pay proposal results, Egan-Jones’ two most popular policies recommended against the say-on-pay proposal at S&P500 companies more than 30% of the time in 2024. Egan-Jones’ policies are designed to protect and enhance shareholder wealth. Therefore, CEOs should be well-compensated for driving above-average shareholder returns. Conversely, poor shareholder returns should not be rewarded with above-average compensation packages. Ideally, CEOs should be paid no more than is necessary for them to be motivated and retained.

IV. Where is the disconnect occurring?

As is well-known, the two other major proxy advisors offer consulting services to issuers in addition to proxy advice. One possible answer is that this practice creates at least an appearance of a conflict of interest at proxy advisory firms, as they provide advice on say-on-pay proposals for the same companies whose executive compensation they also evaluate.

V. How to Respond

Shareholders, and especially those who manage other’s assets, have the privilege and responsibility to vote on executive compensation with the sole purpose of driving shareholder value. Egan-Jones, one of the three leading independent proxy advisory firms, can help.