Compensation-based regulatory reforms are unlikely to proceed, however
Executive compensation tops the list of governance issues occupying the thoughts of professionals – with political spending and board diversity also forcing their way in, according to a new poll.
PwC’s Governance Insights Center asked directors and other governance-focused officials during a webinar Tuesday about which governance issue is top of mind for them at present, as companies approach the height of the 2017 proxy season. Thirty-nine percent pointed to executive compensation, while 19 percent and 17 percent cited political spending and board diversity, respectively. Climate change was the top concern for 15 percent of respondents, and 9 percent pointed to proxy access.
Shareholders, particularly institutional investors, are placing greater pressure on many companies to address a variety of issues. But the level of concern expressed by respondents does not necessarily match the degree of investor interest.
PwC cited an Alliance Advisors preview of this year’s proxy season as finding that 417 environmental and social shareholder proposals have been filed, including 96 on political spending and 153 on the environment – although more professionals cited spending than climate change as a concern. Similarly, shareholders have filed 314 governance-focused proposals this year, of which 163 concern proxy access – the lowest-ranked issue in the poll – while there have been just 80 compensation proposals – the top-ranked concern - of which 37 concern CEO pay ratio and pay disparity.
Similarly, PwC and Broadridge Financial Solutions data presented during the webinar suggested that large majorities of investors tend to give their support in say-on-pay votes. In addition, Leah Malone, director with the Governance Insights Center, told listeners that a number of regulatory measures on executive compensation that have been looming over companies are unlikely to proceed.
Malone noted that, although companies have been preparing to comply with the SEC pay ratio rule scheduled to go into effect next year, acting chair Michael Piwowar ordered a reconsideration of the reform in January. The rule would require public companies to disclose the ratio of the median of the annual total compensation of all employees to the annual total compensation of the CEO. Malone said she thought it likely that the rule would be overturned.
Similarly, she expected the SEC’s Dodd-Frank Act-mandated pay versus performance and clawback rules to ‘die on the vine,’ despite having reached the proposal stage, given the shift in administration and hence shift in the political balance on the commission. But she noted that many companies have voluntarily adopted clawback provisions anyway amid shareholder support.