Beating the Proxy Rush–A Day Examining Executive Compensation

As Say on Pay enters its third year, shareholders’  expectations are increasing along with the stakes for the professionals charged with helping their organizations achieve successful outcomes.

While others were enjoying the holidays, participants at the SEC Institute Executive Compensation Disclosure Forum in San Francisco and those attending by webinar spent a day drilling down to the details of executive compensation, led by Mark Borges, Principal of Compensia and chair of the Institute’s Forum. The former SEC special counsel in the Office of Rulemaking has encyclopedic knowledge of the issues and the challenges of executive compensation in a post-Dodd Frank world.

Subtitled, “How Say on Pay Has Changed Everything,” Borges conducted the all-day seminar with the skill of a concertmaster in bringing in the perspective of faculty members including David Lynn, Partner at Morrison & Foerster former Chief Counsel for the SEC’s Division of Corporation Finance, his Compensia colleague Rebecca Busch, Cooley attorney Amy Cole and shareholder engagement strategist, Karen Kane.  Eli Lilly and Company Assistant General  Counsel, Bronwen Mantlo and Susan Hutchens, Eli Lilly Director of Executive Compensation provided real world commentary on best practices. Many participants reported that they had already started proxy preparations for 2013 with the seminar a stage-setting opportunity.

Key takeaways:

Borges:  “My thesis is that the imposition of mandatory say on pay has fundamentally changed the way companies approach disclosure.  It’s no longer a compliance exercise but a communication  operation. We have seen disclosure evolve over the last few years to a much more sophisticated presentation of a company’s pay for performance message because you know that’s what’s being evaluated by your investors and the proxy advisory firms.  It also points to the fact that shareholder engagement more important than ever.”

Lynn:  “It’s not just the amount of money that the board approves in executive compensation, but the process the board went through in arriving at their decisions.”

Busch: “About 15 percent of companies receive negative recommendations from proxy advisory firms on their say on pay vote.  But remember, only 2 percent actually fail their say-on-pay votes. Although receiving a negative recommendation puts you at a higher risk of failing, it is not a guarantee and many companies are able to convince their shareholders to support them in spite of proxy advisory firm recommendations.”

Kane:  “Compensation is a window on board competency. Say on pay legitimizes shareholder scrutiny of the board of directors and its competency in providing oversight.”

Mantlo:  “We convene a cross-functional team to manage the proxy process to bring the right communication focus to a plain English and readable proxy.

Hutchens:  “We work with our corporate communication department to ensure that our messaging around compensation is clear and consistent.”

Cole: “Dealing with proxy advisory firms has become a critical aspect of preparing for the annual meeting in the say on pay environment.  In setting up a call and engaging with the proxy firm analyst when there is a discrepancy it’s important to convey that you take their opinion seriously.”

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