Say on Pay votes, instituted by the Dodd-Frank legislation passed after the 2008 financial crisis, allow shareholders to vote on executive pay programs. Although the votes are advisory, boards pay close attention to the results, and even outcomes that yield a passing proposal may be cause for concern.

Most companies receive at least 90% approval from shareholders (about three-quarters of public companies) and any result under 70% is considered a concern by Institutional Shareholder Services (ISS), a shareholder advisory firm. Since shareholders also vote to elect the board members who sit on the compensation committee those directors are held accountable for executive pay packages more so than their fellow directors.

BlackRock, the largest U.S. institutional investor, recently released 2022 guidance indicating that it will not only vote against pay plans that exhibit pay for performance misalignment, but also the compensation committee members of the board in such instances.

Our CompanyIQ^® review of the past three years of Say on Pay votes for the S&P 500 and Russell 3000 suggests that boards need to keep a keen eye on justifying special awards.

In the S&P 500, key takeaways were:

• Average Say on Pay support dropped six percentage points among S&P 500 companies from 2019 to 2021.
• 81% of S&P 500 companies that failed Say on Pay in 2021 made a special grant.

 
For the Russell 3000, key takeaways were:

• Three of four Russell 3000 companies received at least 90% shareholder support over the last three years, while the average Say on Pay result
  remained steady at 90% – 91% support over the same period.
• Russell 3000 companies that made a special grant received average Say on Pay support of 90% in 2021, same as the index as a whole. In previous
  years, companies that made a special grant lagged their index peers with average Say on Pay support of 88% (91% for the index) and 87% (91% for the
  index) in 2020 and 2019, respectively.