Executive Summary

Specifically, this report will cover the following areas:

■ Standard & Poor’s (S&P) 500 Say on Pay (SOP) Vote Results and Analysis;

■ Russell 3000 SOP Vote Results and Analysis; and

■ Analysis of Vote Results on Select Shareholder Proposals.

Highlights of Say on Pay Vote Results (through June 30, 2019)

■ 98.57% of S&P 500 companies’ SOP proposals have received majority shareholder support (Six S&P 500 companies’ SOP proposals failed to receive majority support – namely, Align Technology, Ameriprise Financial, CenturyLink, Fleetcor, Netflix and Xerox).

■ 97.59% of Russell 3000 companies’ SOP proposals have received majority shareholder support (50 Russell 3000 companies’ SOP proposals failed to receive majority support).

■ Institutional Shareholder Services (ISS) has recommended AGAINST 10.8% and 13.2% of SOP proposals at S&P 500 companies and Russell 3000 companies, respectively.

■ So far this proxy season, negative ISS SOP vote recommendations at S&P 500 companies have arguably depressed shareholder support by 27.1 percentage points, down from the prior eight-year average of 30.4 percentage points.

Highlights of Vote Results on Select Shareholder Proposals (through June 30, 2019)

■ So far this proxy season, the most prevalent shareholder proposal on corporate governance relates to the separation of CEO and Board Chair roles. However, none of the 56 proposals voted on thus far have received majority support.

■ Other key shareholder proposals on corporate governance seek (i) the right to act by written consent, (ii) the right to call a special meeting at a specified ownership threshold, (iii) the right to proxy access, (iv) the elimination of supermajority requirements to amend the charter or bylaws, and (v) a majority-voting requirement in the election of directors.

■ The most prevalent type of compensation-related shareholder proposal requests that a company report on a company’s gender pay gap. The second-most prevalent type of compensation-related proposal seeks for the board to include environmental or social metrics in determining senior executive incentive compensation. However, none of the proposals voted on thus far have received majority support.

■ Two diversity related shareholder proposals received majority shareholder support. One shareholder proposal called for Travelers Companies to issue a company-wide diversity report with employee data by gender and race in EEOC-defined job categories. The other shareholder proposal called for Newell Brands to issue a report on diversity in executive leadership.

■ Shareholder proposals calling for the adoption of a clawback policy and annual disclosure of any recouped compensation received majority support at Fleetcor Technologies and Mallinckrodt, respectively. A shareholder proposal seeking to broaden the company’s clawback policy received majority support at Mylan.

2019 Say on Pay Vote Outcomes

Percentage of Failed SOP Proposals

So far this year, only six S&P 500 company’s SOP proposals and 50 Russell 3000 companies’ SOP proposals have failed to receive majority shareholder support. Nearly 80% of both S&P 500 companies’ and Russell 3000 companies’ SOP proposals have received 90% or more shareholder support through June 30, 2019 (see following discussion).

2019 Say on Pay Vote Outcomes

Level of Shareholder Support – S&P 500 Companies

Level of Shareholder Support – Russell 3000 Companies

Analysis of Failed SOP Proposals in 2019

Number of Failed SOP Proposals

Contributing Reasons for Failed SOP Outcomes (Based on ISS Commentary)

■ Failure to respond sufficiently to multiple years of low SOP support.

■ CEO pay-for-performance misalignment, primarily due to a failure to meet ISS quantitative tests (especially the three-year Relative Degree of Alignment (RDA) test, which compares three-year relative CEO pay and relative TSR performance, and/or the multiple of peer median test).

■ Goals in short- and/or long-term performance plans not viewed as sufficiently rigorous.

■ Lowering of performance goals from prior year without corresponding decrease in incentive award opportunities.

■ High proportion of non-performance-based compensation.

■ CEO compensation is largely discretionary and/or lacks clear linkage to financial performance criteria.

■ Performance-based equity awards include a one-year measurement period or alternate vesting conditions.

■ Outsized time-based grants to new hires (CEOs and other NEOs).

■ “Problematic pay practices,” including large, one-time equity grants, excessive retirement payments.

Analysis of ISS Impact on 2019 SOP Vote Outcomes

Percentage of SOP Proposals Not Supported by ISS

Analysis of ISS Impact on 2019 SOP Vote Results

Impact of ISS Adverse Recommendation on SOP Vote Results for S&P 500 Companies

Impact of ISS Adverse Recommendation on SOP Vote Results for Russell 3000 Companies

Impact of ISS Quantitative Pay-for-Performance Test Results on ISS’s 2019 SOP Vote Recommendations

A primary driver for an unfavorable vote recommendation from ISS is CEO pay-for-performance misalignment based on weak outcomes from the ISS quantitative tests, especially the three-year Relative Degree of Alignment (RDA) test.

As shown below, in 2019, ISS has issued a “High” concern level for roughly 17% of companies, and 47% of these companies have received a negative ISS vote recommendation. In contrast, only a small minority of companies have received a negative ISS vote recommendation for “Medium”, “Cautionary Low” and “Low” concern levels this year.

Companies that receive a “Cautionary Low” or a “Medium” concern on the initial quantitative pay-for-performance tests are subject to ISS’s relative financial performance analysis to determine the overall concern level and the degree of scrutiny in the ISS qualitative pay-for-performance assessment.

Analysis of Proxy Access Proposals at Russell 3000 Companies (through 6/30/19)

As an increasing number of large cap companies have voluntarily adopted proxy access, the number of shareholder proposals seeking proxy access this proxy season has continued to decline from the peak levels in 2015 and 2016.

Similar to last year, shareholders are also voting on proposals to amend proxy access bylaws to include provisions that broaden the right to proxy access. However, none of the 23 proposals voted on thus far have received majority support (average support was 28.8%).

Prevalence and Status of Shareholder Proxy Access Proposals in 2019 and 2018

The following table shows 2018 vote results and 2019 vote results through June 30, 2018 on proxy access proposals.

Prevalence and Status of Management Proxy Access Proposals in 2019

So far this proxy season, only three Russell 3000 companies have submitted management proposals on proxy access to shareholders. Each of these proposals received majority shareholder support.

Analysis of Shareholder Proposals at Russell 3000 Companies (through 6/30/19)

Shareholder proposals on key governance and pay-related matters continue to draw significant attention from corporate boards.

Prevalence and Status of Shareholder Proposals on Corporate Governance

The chart below provides a comparative summary of 2018 and 2019 shareholder proposals on key corporate governance matters.

Prevalence and Status of Shareholder Proposals on Executive Pay

The chart below provides a comparative summary of 2018 and 2019 shareholder proposals on executive pay matters.

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© 2019 Meridian Compensation Partners, LLC. The material in this publication may not be reproduced or distributed in whole or in part without the written consent of Meridian Compensation Partners, LLC. Questions or comments regarding this report should be directed to Donald Kalfen at dkalfen@meridiancp.com or 847-235-3605.