Addressing Shareholder Executive Compensation Concerns - Arden T. Phillips

Talking Trends
3 min readOct 18, 2021
Arden T. Phillips

Eight years ago, I wrote an article regarding the growing focus on executive compensation by shareholders. Executive compensation has since developed into a perennial key issue for boards and the corporations they oversee. Mainly through “say-on-pay” voting, shareholders have been able to exert significant influence over the pay practices of publicly traded companies.

Surprisingly, many of the suggested actions in that 2013 article are still viable steps that can be taken to address executive compensation concerns of institutional and activist shareholders. Doing so, can be broken into two stages: first, designing an appropriate executive compensation program and second, being effective in communicating your company’s executive pay practices. In summary, companies should:

Use peer groups. In designing executive compensation programs, companies should use peer group comparisons to benchmark and support short and long-term incentive pay practices. However, be sure that the peer group is an appropriate comparison to your company. Finding appropriate peer group companies involves examining the industry, services and products, market share, market capitalization, revenues and other factors of competitors.

Be proactive. Boards should ensure that their companies have outreach to key stockholders through well-structured engagement programs. With ESG issues gaining owing, companies should consider whether stockholder outreach is sufficient and whether there are other stakeholders that should be targeted. Engagement promotes substantive dialogue with shareholders and facilitates future shareholder support of the company and its board of directors on a variety of issues — even beyond compensation matters.

Communicate clearly. Proxy statements can be utilized as a communication tool in explaining how compensation is designed to: incentivize executives to achieve company goals; create long-term shareholder value and promote accountability. Proxy statement disclosure should incorporate summaries describing executive compensation policies, stockholder outreach, stockholder feedback and how/why that feedback was implemented (as well as any reasons for which it wasn’t implemented). It is also a good idea to use tables, charts, or graphs to illustrate the objectives of the compensation program, operational accomplishments, “realized pay” regarding pay-for-performance alignment, and “scorecard” results regarding criteria and goals used to evaluate executive performance.

Research and Review. Research and review the voting guidelines and the policy positions of: proxy advisory firms, asset managers like Vanguard and BlackRock which may vote behalf of beneficial stockholders and other large institutional shareholders, including pension funds. A review should be done annually to assess any changes and to see how the company’s compensation policies differ from these institutions and the implications of those differences.

In conclusion, to have productive relationships with shareholders and successful annual meeting votes, boards should make sure, at a minimum, that their companies are engaging in the above-listed actions. Taking these actions will help companies to stay abreast of the evolving EGS/governance priorities and concerns of shareholder and incorporate appropriate changes to compensation policies, proxy statement disclosure and overall shareholder engagement strategy.

The Board’s Role in Addressing Shareholder Executive Compensation Concerns

Read the 2013 article here.

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