Say-on-Pay Results Through February 1
Through February 1, 2011, 17 issuers have reported voting results for non-TARP say-on-pay issuers. Of these, 12 boards recommended a triennial frequency.
For issuers with a market cap of over $10 billion where the board recommended a triennial frequency, shareholders in every circumstance expressed support for an annual frequency vote for all four reported results. In two votes, the percentage expressed in favor of an annual frequency was 52%, and in the other two votes the percentage was 60% and 62%.
For issuers with a market cap between $1 billion and $10 billion, four boards recommended a triennial frequency, and in only one (Sally Beauty) did the shareholders support a triennial frequency.
For issuers with a market cap of under $1 billion, the tale so far is decidedly different. Four boards recommended a triennial frequency and in each case the shareholders supported that decision. Three of these however, were in the under $55,000,000 market cap territory, some with significant concentrated ownership, including insiders or related ESOPs.
One issuer had a majority of votes cast against its say-on-pay resolution. The arithmetic average of no votes on say-on-pay for issuers with a market cap in excess of $1 billion (regardless of frequency), with ten issuers reporting, is approximately 16%. Outliers in the no vote category are Jacobs Engineering (53%), Monsanto (34%) and Johnson Controls (36%). When these issuers are removed from the calculation, the arithmetic average for the seven remaining issuers is a little over 5%. For issuers wondering what the results of a “good vote” are, this might be the start of a good yard-stick measurement.
How Are Institutions Voting on the Frequency Issue?
If all institutions were following ISS’s recommendation for an annual frequency vote, one would expect that the percentage of votes cast in favor of an annual frequency would equal or exceed the amount of reported institutional ownership for an issuer. That is not in fact the case, suggesting institutional voting policies are not yet understood. For the eight issuers requesting a triennial frequency with a market cap of over $1 billion, it appears only institutions holding shares representing 74% of the votes cast are following ISS’s recommendation (obtained by dividing percentage of votes cast in favor of an annual frequency by reported institutional ownership). Individual issuer votes range from 63% to 85% using the same measure. A crude test admittedly but it raises some questions on overall trends.
There are some interesting broker non-vote results being reported. If broker shares present at a meeting and are voted on permitted broker vote matters, one would expect the exact same number of shares being reported as broker non-votes on matters where brokers are not permitted to be voted. That is not always the case. For instance. Johnson Controls reported 62,828,788 broker non-votes on the frequency vote, but only 55,985,310 on the say-on-pay vote, and 55,982,192 on director election votes. I am unable to explain why, but it probably has something to do with proxy plumbing issues, with issuers reporting what the vote tabulators tell them.
Check dodd-frank.com frequently for updates on the Dodd-Frank Act and other important securities law matters.
Contact Steve Quinlivan for more information.