Say-on-Pay Rulebook – “Do’s and Don’ts” from an Investor Perspective

In today’s environment, boards are hard pressed to follow the traditional approach of utilizing pay and benefits as they see fit to “attract, retain, and motivate” the managers who, in their view, will ensure the corporation’s success. Proxy advisors -- and many institutional shareholders -- rely on quantitative models to filter for companies that appear to have pay-performance disconnects or certain unacceptable practices. Both ISS and Glass Lewis follow their filtering with a qualitative assessment that takes into account a variety of company-specific factors; but the advisors and many investors are obligated to follow a consistent framework in applying their policies, sometimes leaving little room for the nuances of business exigencies. The proxy advisors also regularly evolve their policies to reflect new regulations and new thinking (that stock hedging and even pledging by executives and directors raises risks to shareholder value, for example). Even the new CEO-to-median-employee pay ratio that will emerge in 2018 proxies may eventually make its way into advisor and mainstream investor policies, though neither of those groups appears to have formalized public guidelines as yet. 

Carol BowieSenior Advisor, Teneo Governance

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