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Oct 03, 2013

Retail investors seen as key to firms struggling on say on pay, says ProxyPulse

While support for pay plans was slightly higher than in 2012, improved engagement of retail shareholders at firms that failed their proposals could be key to turnaround, the report suggests   

Equity ownership among institutional investors rose two percentage points from 2012 to 67 percent of street shares, versus 33 percent retail ownership, according to the third and final edition of ProxyPulse released on October 2. Institutional equity ownership has been rising since the 1980s, mostly due to the ongoing migration of individuals into institutionally managed accounts.  

The report, produced jointly by Broadridge Financial Solutions and PwC’s Center for Board Governance, covers 4,037 shareholder meetings held during the first six months of 2013.

As shown by earlier editions of the report, voting of shares by retail shareholders is much lower than voting by institutional investors -- roughly 30 percent and 90 percent, respectively. Retail voting fell one percentage point from 2012. Although low retail voter turnout is often blamed on apathy, the ongoing transition to distributing proxy materials electronically via ‘notice and access,’ which saves issuers on printing and mailing costs, is likely a contributing factor, ProxyPulse says.

The added step of requiring voting on the Internet resulted in less than 5.0 percent of retail recipients of a mailed notice voting, versus 90 percent of institutional investors, unchanged from last year, the report says.   

On average, say on pay proposals this year were approved with 89 percent of shares voted in favor, a modest increase from 2012. Yet across market caps, there were some companies that received over 90 percent support for their pay plans last year that slipped to under 70 percent support in 2013. That’s a reminder, says ProxyPulse, that companies must continue to reach out and engage with their shareholders every year.

And while retail and institutional support of say on pay proposals was comparable overall, retail support was higher than institutional support at all large and mid-cap companies that received less than 50 percent approval of their pay plans. At small and micro-cap firms whose say on pay proposals drew less than 50 percent approval, retail support surpassed institutional support in 97 percent and 62 percent of cases, respectively.  

Directors were elected with an average of 95 percent approval among shareholders, consistent with the 2012 proxy results. The number of directors who failed to win majority approval dropped from 428 last year to 385, which was roughly 2.0 percent of all directors up for election.

A total of 170 companies with director proposals didn’t receive majority support, while 104 companies with say on pay proposals failed to get majority support. Of these, 26 companies didn’t receive majority support for both their director and say on pay proposals, which suggests that ‘when shareholders are unhappy with a company’s pay plan, they may express that dissatisfaction in director votes,’ the report says.

Given that only 2.0 percent of directors didn’t get majority support, the fact that 15 percent of companies with unsuccessful director proposals also failed to get majority approval on their say on pay proposals shows correlation worth noting, says Chuck Callan, senior vice president of regulatory affairs at Broadridge.

Callan believes an oft-delayed decision by the Securities and Exchange Commission, now slated for October 20, on a NYSE rule filing that proposes changes to the fees that companies pay broker-dealers for proxy distribution could be significant. The proposed changes could reduce overall fees, which are estimated at $200 million a year, by 4 percent, according to the NYSE’s Proxy Fee Advisory Committee. The proposal also concerns establishing a five-year fee to develop an enhanced brokers Internet program that could simplify proxy voting for retail shareholders.

David Bogoslaw

Associate Editor and Online features producer for Corporate Secretary