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Along with the now well-known shareholder advisory vote on named executive officer compensation (the “Say-on-Pay Vote”), the Dodd-Frank Wall Street Reform and Consumer Protection Act also introduced the shareholder advisory vote on the frequency of future Say-on-Pay votes (the “Say-on-Frequency Vote”). This latter vote requires public companies, at least once every six years, to solicit the preference of their shareholders for conducting the Say-on-Pay vote – every year, every two years, or every three years. For public companies that held their initial Say-on-Frequency Vote in 2011 – the year the requirement first became effective, the Say-on-Frequency Vote was on the ballot again during the 2017 proxy season.
Recently, Compensia evaluated the Say-on-Frequency Vote results for 176 prominent U.S. technology companies. (The companies reviewed are listed on the Exhibit to this article.) This Thoughtful Pay Alert summarizes our findings as of July 19, 2017, based on the results of the 2017 annual meeting of shareholders held prior to that date. These results are disclosed in the Exchange Act reports of these companies as filed with the Securities and Exchange Commission.
Companies Reviewed
As of July 19, 2017, 79 of the 106 companies holding Say-on-Frequency Votes this year (74.5%) had held their 2017 annual meeting of shareholders and reported the results of the various votes conducted at the meeting. Of the 176 companies reviewed, 70 either went public on or after 2011 (meaning that, as emerging growth companies, they are not required to conduct a Say-on-Frequency Vote) or held their first Say-on-Frequency Vote after 2011 and, thus, have not yet reached the sixth anniversary of that vote.
2017 Say-on-Frequency Vote Results
Of the 79 companies that have reported the results of their 2017 annual meeting of shareholders, 78 (98.7%) have disclosed that their shareholders expressed a preference and the Board ultimately agreed for future Say-on-Pay Votes to be held on an annual basis. Only one company saw its shareholders express a different preference, with that company’s shareholders voting in favor of holding future Say-on-Pay Votes every three years.
As reflected in the foregoing graphic, 27 companies have yet to hold their 2017 annual meeting of shareholders.
Significant Decrease in Support for Triennial Say-on-Pay Votes
While the initial Say-on-Frequency Votes conducted in 2011 showed a significant preference for annual Say-on-Pay Votes, a notable number of companies (approximately 12%) saw their shareholders indicate support for a less frequent Say-on-Pay Vote (either every two or three years), with the vast majority of these companies finding their shareholders comfortable with a triennial Say-on-Pay Vote.
Nationally, this result has changed significantly in 2017, with almost two-thirds of the companies that decided to conduct triennial Say-on-Pay Votes six years ago now opting to switch to annual Say-on-Pay Votes. Our findings indicate that the technology sector is following this trend.
Of the 11 companies that determined in 2011 to hold triennial Say-on-Pay Votes that have held their 2017 annual meeting of shareholders, only four saw their Board of Directors recommend that shareholders continue to support that approach. The remaining six companies recommended that future Say-on-Pay Votes be held every year, while one company has yet to hold their vote or file their proxy.
In addition, of the four companies recommending triennial Say-on-Pay Votes, three saw their shareholders vote in favor of conducting future votes on an annual basis.
As a result, 8 of the 11 companies that had previously held triennial Say-on-Pay Votes will be conducting future Say-on-Pay votes every year, 1 will be triennial and 2 are awaiting results.
Final Observations
While it has been clear from the outset that shareholders preferred that Say-on-Pay Votes be held annually, for the past six years there were still a fairly significant group of companies that were holding such votes less frequently. That pattern has changed dramatically this year. Particularly in the technology sector, when we reach the end of the year, it is likely that well above 90% of the companies that held a Say-on-Frequency Vote this year will have determined to hold future Say-on-Pay Votes annually – consistent with the national trend. As a result, situations where Say-on-Pay Votes are held less frequently (that is, every three years or, occasionally, every two years) are likely to be limited to companies where a shareholder (or small group of shareholders) hold a controlling interest in the company or companies with dual class stock structures.
Need Assistance?
Compensia has extensive experience in helping companies draft the executive compensation disclosure in the proxy materials for their annual meetings of shareholders and analyze the potential impact on the Dodd-Frank Act shareholder advisory votes on their executive compensation programs. If you would like assistance in preparing your executive compensation disclosure for the required shareholder advisory vote on executive compensation, or if you have any questions on the subjects addressed in this Thoughtful Pay Alert, please feel free to contact Shayda Fazeli or Mark A. Borges.