We now have our first failed say-on-pay proposal for this proxy season. Discussed below, this failure raises the issue of whether companies should affirmatively disclose controversial pay practices or compensation issues within their proxy statements. Minimally, the issue should be considered.
Generally, institutional shareholder advisory services such as ISS will only look to the "four corners" of the proxy statement in making its recommendation (i.e., it will not look at other filings of the issuer). This means that if a company has a controversial pay practice or compensation issue, it should consider affirmatively explaining such issue in its proxy statement in the hopes of avoiding a possible negative recommendation from ISS (and applicable others).
First Failed Say-on-Pay Proposal of this Proxy Season
On January 28, 2011, Jacobs Engineering Group Inc. filed a Form 8-K (Found Here) showing that their advisory say-on-pay vote resulted in a majority voting "against" the proposal. This is the first failed proposal for this proxy season.
It seems a cause for the failure related to a one-time grant of restricted stock to its executive officers. The proxy statement contained little discussion about the grants. Though I did not check, it can be inferred that ISS (or other service) recommended a "no" vote because the company later made an effort to explain the grants by filing additional materials to its proxy statement. (Found Here)
Some Examples of Companies Providing Affirmative Disclosure
A few examples of companies providing affirmative disclosure of controversial pay practices or issues within their proxy statements are as follows:
- FedEx Corporation explained in their proxy statement filed on August 16, 2010, why tax reimbursements associated with their executive officers' receipt of restricted stock was appropriate even though the company generally discontinued tax gross-ups. (Found Here)
- Level 3 Communications, Inc. discussed its rationale for single trigger vesting and 280G gross-up provisions in its proxy statement filed on April 2, 2010. (Found Here)
- Saks Incorporated addressed its rationale for severance arrangements with its executive officers in its proxy statement filed on May 7, 2010. (Found Here)
- Intel Corporation addressed overhang and burn rate issues in its proxy statement filed on April 3, 2009. (Found Here)
To close, companies should at least consider providing affirmative disclosure.