Published on: June 28, 2018
Authors: Ani Huang
During proxy season, Chief Human Resource Officers and their teams face many challenges, including the impact of the Say on Pay vote recommendations of the two largest proxy advisory firms, Institutional Shareholder Services (ISS) and Glass Lewis & Co. According to Center On Executive Compensation data, ISS’s recommendation effectively shifts 25% of the Say on Pay vote, with external research placing Glass Lewis’s influence at six to eight percent. This combined influence does not include the other incidental consequences of an “Against” recommendation such as increased scrutiny on management, the Board, and executive pay in future years by proxy advisors, investors, and other stakeholders. Given the potential impact on the reputation of Board members and the company of a low Say on Pay vote, the emphasis on securing positive proxy advisory firm support for Say on Pay is understandable.
The Center’s Guide to Navigating a Proxy Advisory Firm “Against” Recommendation provides a framework of best practices and considerations for handling the myriad issues presented by proxy season and proxy advisory firm recommendations. However, given that the philosophical and methodological concerns inherent in the proxy advisory firm model are well known, the various flaws and conflicts of interest will not be rehashed in this Guide.
Forming the basis for the content of this Guide is input gathered from ten in-depth interviews with Center Subscribers in early 2018. Each interviewed company received an “Against” recommendation from ISS during the 2016 or 2017 proxy season and the interviews focused on their experiences and takeaways before, during, and after the proxy season because in the clear majority of cases, company Say on Pay recommendations are a culmination of a series of decisions and circumstances which unfold over a longer period of time. Thus, we divide this Guide into three separate sections:
(1) Before Proxy Season;
(2) During Proxy Season, and
(3) After Proxy Season.
Each section includes several sub-topics which detail steps and considerations for companies as they approach proxy season and for navigating “Against” recommendations in the larger context of the proxy season.
Finally, this Guide is not just for companies that have received an “Against” recommendation and are looking for the steps they can take to respond accordingly. The Guide provides a comprehensive list of considerations which, if followed, can benefit any company significantly in navigating the influence of proxy advisory firms.