Say on Pay

Semler Brossy Consulting Group (download required)

We collected results for 136 more companies this week, bringing our total to 1,675 for the season. This week, we found nine more companies that failed Say on Pay, bringing our total to 38 (Big Lots, Consolidated Water Company, East West Bancorp, FTI Consulting, LifePoint Hospitals, Nabors Industries, OpenTable, The Children’s Place Retail Stores, and Tutor Perini). Two companies, Nabors Industries and Tutor Perini, also failed in 2011 and 2012 (joining Kilroy Realty as companies that have failed three consecutive years). Year-over-year, results have improved ~1%; companies that failed in 2012 have received significantly more support in 2013 (on average, +40%). In our “Vote of the Week,” we discuss Nabors Industries and Tutor Perini. Both companies have failed Say on Pay three times. Failure at both companies was related to (i) high CEO compensation during a period of lagging TSR and net income performance and (ii) shareholder concerns over the company’s outreach process and inadequate program changes.

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House Panel Hearing on Proxy Advisory Firms

A U.S. House of Representatives panel held a hearing last week to review the role of proxy advisory firms in corporate governance. The hearing also addressed ways to make the proxy system simpler and more transparent. The House Financial Services Committee heard testimony from a range of groups, including the U.S. Chamber of Commerce, Society of Corporate Secretaries & Governance Professionals, and the Shareholder Communications Coalition, about the growing influence of the proxy advisors and their impact on companies. Particular attention was directed at two firms —Institutional Shareholder Services (ISS) and Glass, Lewis & Co.—as they currently hold 97% of the proxy advisory market. Rep. Scott Garrett (R-N.J.) spearheaded the hearing and claimed that proxy advisory firms are “exploiting the proxy system to push special interest agendas,” at the expense of companies and with no benefit to investors. Proxy Advisory firms’ universal recommendation for annual say on pay votes was also called into question as some companies utilize executive compensation programs that are meant to be viewed on a two or three-year basis.

Rep. Garrett Puts Spotlight on Powerful ISS (MarketWatch)

House Panel Studies Proxy Advisory Firms’ Role (Agenda - subscription required)