2022 Depicts Highest Say on Pay Failure Rate Yet

Semler Brossy published its full year 2022 Say on Pay results for Russell 3000 companies and the failure rate increased nearly a full percentage point – from 2.8% to 3.7% over last year. A total of 82 companies failed and about 27% of these companies are in the S&P 500. Voting results are directly and significantly impacted by ISS recommendations. This year, 14% of Russell 300 companies (compared to 11.3% last year) and 12.7% of the S&P (compared to 11.1% last year) received an “Against” recommendation by ISS.

This translates to average voter support dropping by 33% in the Russell 3000 and 38% within the S&P 500. Large cap companies continue to receive the most Say on Pay criticism with one-third of the S&P 500 receiving less than 90% support. This has been a trend over the past five years - Semler Brossy examined the reasons and implications for this in a previously published piece that we featured several months ago. That article indicated large-cap companies need to “lead the way” in responding to changing investor and proxy advisor guidelines as these firms incur more criticism from all stakeholders and from the media for any perceived misstep. Organizations that do not stay on top of the minimum investor expectations for ESG topics and current on evolving guidance may experience negative voting implications.

The year-end report identifies the primary reasons for failed votes: pay and performance relationship, problematic pay practices and non-performance-based equity or special awards. Some companies, to a lesser extent, lack voter support due to rigor of the performance goals or shareholder outreach issues.

As the ESG war continues, the number of shareholder proposals has increased but median support declined from 32% to 22% (likely due more to the sheer number of proposals that made it to the ballot than to a lack of support for topics). The categories that gained the highest support levels were on EEO-1 disclosure, DE&I efforts, and lobbying payments. Environmental proposals had a 19% drop in median support – going from 46% to 27% - but emission reduction and plastic pollution proposals drew the greatest levels of voter support.