Say-on-Pay Trends: Higher CEO Pay Equals Lower Shareholder Approval

Executive pay declined at many organizations during 2020, so why have a record number of those same organizations failed to achieve a passing Say-on-Pay vote from shareholders in 2021?

The COVID-19 pandemic drove shifts in many corporate practices, ranging from new remote work policies to furloughs to revised pay structures. Although executive pay decreased at several companies during 2020, it appears that some shareholders felt the changes were not significant enough.

A recent NASPP blog (“ Say-on-Pay Failed Votes Double in 2021: 4 Things to Know”) covers the record trend in failed Say-on-Pay votes for 2020 compensation practices. Similarly, a recent Equilar blog explored this pattern and observed a connection between higher CEO pay and a slide in shareholder approval ("Say-on-Pay: Approval Slides as CEO Pay Rises"), excerpt below:

“…the overall trend is that of high median CEO compensation paired with low Say on Pay approval. Median CEO pay was around $17 million for companies that fell under 50% approval. This exemplifies that high pay continues to be a matter of concern for shareholders. Though some companies did lower compensation, the data suggests that shareholders may still view it as too high. It is important to note that though shareholders’ reluctance to approve high pay is not a new phenomenon, zooming in on individual companies provides insight into COVID’s role in intensifying this effect.

One failure this year, Starbucks, shows just that. In 2020, Starbucks paid its CEO $14 million, a drop from $19 million in 2019. Starbucks received a 47% vote this year compared to a passing 84% vote last year, despite the lower pay. AT&T witnessed a similar event, failing its vote regardless of an $11 million drop in pay. Walgreens Boots Alliance joined in with CEO pay roughly $1.6 million lower than last year but over a 35 percentage point drop in approval. Though various factors are possibly at play, it’s likely that the pandemic heightened shareholders' criticism of unnecessarily high compensation. It seems natural that, with economic uncertainty, shareholders are more willing to express disapproval if companies aren’t bearing their share of the burden.”

The COVID-19 pandemic refined and redefined perspective on many things. Along those lines, it seems that executive compensation is one of them. While Say-on-Pay votes aren’t binding, they can reflect the level of shareholder warmth towards pay practices. And it seems that in 2021, the number of companies to receive a failed vote will stand at a new record high.

What’s a company to do? Perspective is a significant part of the equation. While some entities may think any decrease in pay will satisfy shareholders, the reality is that shareholders may want more. Success may lie in finding the sweet spot where pay adjustments gain favor from shareholders while also retaining the executive.