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Executive bonuses in the United States have received low investor support this year after the boardroom decided to relax performance targets during the pandemic.
So far, in 2021, shareholder support for bonuses for U.S. executives is the lowest since 2011, the year in which the “say about payment” vote was made mandatory, according to Equilar, a data company payment. This year, the average support for payment packages has fallen to 87.6%, from a high of 91.8% in 2015.
Six S&P 500 companies this year, including General Electric, AT&T, IBM and Starbucks, have failed to get the most shareholder support for payment packages. This compares to ten cases across 2020, when the majority of shareholders voted against a company’s bonus plan, according to ISS Corporate Solutions.
Some asset managers said they expected this year to be a record for failed pay votes in S&P 500 companies. For Russell 3000 companies, the rate of payroll failure in early May had been higher than 2020 and 2019, said ISS.
According to a report released last week, BlackRock, the world’s largest asset manager, doubled its votes against executive compensation proposals in the Americas during the first three months of 2021 compared to previous.
More companies are at risk of losing payroll votes as the U.S. annual meeting season rises sharply in the coming weeks. IAC Group, the media, and Barry Diller’s Internet conglomerate have filed objections to the executive bonuses of representative advisory firms ahead of the company’s May 14 meeting.
Altria, the cigarette maker Marlboro, and Union Pacific, the railroad group, also run the risk of not voting in the coming weeks, according to last week’s Morgan Stanley report.
“The fact that last year there was a pandemic potentially raised awareness around spending against layoffs and general suffering,” said Lisa Edwards, president and chief operating officer of Diligent, a government software provider corporate.
Control of bonuses “will likely remain reasonably high,” Edwards said, adding that failed pay votes were “potentially the beginning of a trend.”
While these payroll votes are advisory and non-binding, they can be detrimental to companies. From 2017 to 2019, most companies that failed in pay votes had a lower performance than the S&P 500 and its industry peers, Morgan Stanley said.
In addition, investor investors saw pay-as-you-go votes “like blood in the water,” said Lawrence Elbaum, a partner at Vinson & Elkins.
“A bad opinion on the wage vote is one of the clearest and earliest warning signs an activist will knock on your door because they have seen that shareholders are upset,” Elbaum said.
Many of this year’s notable salary reactions come from changes in bonus plans designed to help executives get bonus bonuses during the pandemic stock market crash.
More than 100 S&P 500 companies have rewritten bonus plans for executives as a result of the pandemic, according to Esgauge, a data analytics firm and the Conference Board.
At Walgreens Boots Alliance, a pharmacy chain, the board rewrote the executives ’long-term bonus plan to isolate their pay from the business upheaval caused by Covid-19. Asset manager Vanguard, which voted against the payment packages at Walgreens, said the company should have submitted “a compelling justification” for the bonus changes. About 53% of Walgreens shareholders voted against the bonus.
GE’s board also struggled to rewrite bonds during the pandemic. The new director’s contract, Larry Culp, reduced the price of the shares with which he would earn bonus shares and nearly doubled the number of shares he would receive. Payment could increase to a maximum of $ 230 million by at least 2024 if it stays with the company. GE shareholders revolted for his salary at the May 4 meeting of the company.
“When you award a $ 230 million retention award to someone, you can’t be terribly surprised that you can increase investor anger,” said Marc Hodak, a partner at Farient Advisors, an executive compensation consulting firm.
Union Pacific, which will hold a “say on pay” vote at its May 13 annual meeting, withdrew the worst months of the pandemic for its business from its executives ’performance targets. By removing the second quarter of 2020 from executive bonus plans, Union Pacific executive director increased 10% over 2019, Morgan Stanley said.
“It’s interesting that there’s no symmetry in how discretion and adjustments are made,” said Simiso Nzima, investment director and head of corporate governance at CALPERS. Bonuses are never restricted when companies benefit from positive economic forces beyond the control of executives, he added. “It can’t be had in both directions.”
While they might complain about executive salaries, investors have tended to support management because of the belief that high bonuses are needed to retain executives and because leadership transitions can hurt the share price of executives. company.
But the pandemic highlighted wage inequalities that are becoming increasingly difficult to ignore, said Allison Binns, Morgan Stanley equity strategist, who said the chain of failures in paying votes could herald a change permanent in the behavior of investors.
“This may be a catalyst to curb pay,” Binns added.
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