Abercrombie & Fitch fails Say on Pay after receiving 56% in 2011

According to the Columbus Dispatch, Abercrombie & Fitch announced at its annual meeting today that shareholders had voted against its executive pay programs, as shareholders “expressed displeasure with the company’s recent stock tumble.” The announcement follows 56% support for Say on Pay in 2011. Abercrombie is the 11th S&P 500 and 46th Russell 3000 company to fail this season. We will be reviewing the specifics of this vote in our “Vote of the Week” feature of our weekly Say on Pay report. Shareholders seemed to have remaining concerns over the high value of the CEO’s executive pay and the CEO’s employment agreement, which entitles the CEO to biannual LTI grants of 2.5% of total shareholder return over six-month periods.

Under the agreement, the CEO received two grants of SARs last year – one in March with a grant date fair value (GDFV) of $35m and another in September with a GDFV of $8m – following respective periods of six-month TSR improvement. However, since September-end, the company’s stock price has declined over 50%. Even though both SAR grants last year are currently underwater, per ISS, the awards “carry a seven year life. Therefore, the upside potential for gains is significant once the company stock price increases above the exercise price.” Shareholders also may have taken issue with the company’s response to opposition last year – the company amended the LTI agreement in May 2012 slightly, so that future awards are granted 80% in SARs and 20% in RSUs with performance conditions tied to EPS.

ISS maintained that while these steps would strengthen the pay and performance alignment, “a significant portion of equity does not appear to be rigorously performance-based.”

Source: Columbus Dispatch, Semler Brossy research, and ISS Voting Analytics