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Sep 15, 2013

Improved TSR performance was key in say on pay voting turnaround in 2013, says report

Compensation policy changes, shareholder outreach efforts and better disclosure also helped companies that failed in 2012 succeed this year    

Improvement in total shareholder return (TSR) was a key reason that 39 of 60 US companies that failed their say-on-pay votes in 2012 were successful in having them pass during this year’s proxy season, according to a new report by Georgeson, a Computershare company.

Outreach to and communication with shareholders by the companies boards, preferably by their compensation committees, and improved disclosure were additional factors that helped these companies succeed in their votes in 2013, the report titled ‘Facts Behind 2013 ‘Turnaround' Success for Say on Pay Votes,’ said.

This is one of two related reports that Georgeson released on September 12. The second report is titled ‘Facts Behind 2013 Failed Say on Pay Votes.’  

On average for the 39 companies, their absolute one-year TSR performance was higher and appears to have provided more support for the turnaround in their say-on-pay voting outcomes than their one-year TSR performance relative to their peer group as defined under the Global Industry Classification Standard (GICS), Georgeson said. 

For the 39 companies, absolute TSR averaged 23.1 percent, 1.1 percent and -7.2 percent over the one-, three- and five-year performance periods, respectively.  

The 39 companies outperformed the one-year TSR of their respective GICS peers by 5.6 percentage points, but fell short of their peers’ three-year TSR average by 11.6 percentage points and their peers’ five-year TSR averages by 10.0 percentage points. Just five companies exceeded the TSR average among their GICS peers in all three time periods, while 17 companies underperformed peers in all three periods.

The nine companies that failed their say-on-pay votes in both 2012 and 2013 are Abercrombie & Fitch, Big Lots, Comstock Resources, Gentiva Health Services, Healthways, InSite Vision,  Kilroy Realty Corp., Nabors Industries and Tutor Perini Corp. An additional five of the 60 companies didn’t have a vote in 2013 because of a merger or acquisition, while seven more companies had not yet held their annual shareholder meetings for 2013 as of July 31.

Eight of the 39 turnaround companies will be on proxy advisors ISS’ and Glass Lewis’ watch lists in 2014 due to their low levels of vote support this year -- between 50 and 70 percent, Georgeson said.

Shareholder outreach efforts were specifically cited by 36 of the 39 companies in their 2013 proxy statements as a result of having failed their say-on-pay vote last year. Many of the 36 that disclosed their shareholder outreach effort in their proxies went further by describing these efforts in detail, with 21 companies listing the number of top shareholders they contacted and/or the percent of shares outstanding that were targeted by their outreach campaigns.

Georgeson found through scouring of proxy statements that 38 of the 39 turnaround companies hired independent compensation consultants to determine appropriate compensation levels for senior officers and directors compensation. The use of a proxy solicitation firm to help with investor outreach and with counting of votes at annual meetings to rose to 25 companies 2013 from 21 companies last year, the report said.


David Bogoslaw

Associate Editor and Online features producer for Corporate Secretary