Executive compensation
Keeping shareholders keen on compensation packages
Executive compensation is under more scrutiny than ever before – and the demands of shareholders cannot easily be ignored. Increasingly, they want performance to be the key determinant of remuneration, and their infl uence through shareholder proposals and say-on-pay votes is growing. Partner Chris Havey and lead consultant Nathan Williams at Meridian Compensation Partners talk to CEO about how these mechanisms can best be managed.
here are many ways in which shareholders can influence how a company is managed. That includes how it rewards its senior executives – and for boards it is crucial to understand how these mechanisms work. Knowing how to respond to shareholder proposals, particularly those brought by activist investors, as well as how to navigate so-called ‘say-on-pay’ votes, are essential skills for any director. Shareholder proposals – recommendations from shareholders that put forward courses of action that the board should follow – are a familiar feature in the corporate governance landscape. A common way of exerting influence on even the largest of companies, a recent study by Meridian Compensation Partners found that a full 70% are received by S&P 500 companies. At the same time, such proposals, especially when it comes to executive
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pay, are rising. According to Meridian, after all, the number of such proposals increased between 2021 and Q3 2023, with the proxies of 10% of companies in the Russell 3000, and 40% of S&P 500 companies including shareholder proposals.
A close eye on compensation The largest share of these proposals (38%) concerned governance issues, with social (25%), environmental (18%), lobbying (11%), compensation (7%) and director elections (2%) making up the balance. Rule 14a-8 of the Securities Exchange Act of 1934 provides the framework for public company shareholders to request that a proposal be included in the proxy statement, to be voted upon at a shareholder meeting – and ultimately potentially changing governance practices. The rule, however,
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