Having your say on pay

As the new reality of “say on pay” votes by shareholders settles in, a guiding strategy for companies should be to have your own say. Investor relations professionals (and senior execs) need to learn how to communicate more clearly and proactively on pay and governance.

By last week, 20 U.S. companies had lost (failed to get 50% support in) say on pay votes so far in 2011, according to a posting today on the CFA Institute blog by Matt Orsagh. He notes that say on pay votes are essentially a communication tool:

The institutional investors we talk to — and it is institutional voters who cast the vast majority of these votes — tell us that they have no interest in setting pay, that compensation committees should do that.  What they do want is to be listened to when they feel there is a disconnect between pay and performance, and to have constructive conversations with companies about how to set things right.

But why wait until shareholders slap you in the face over a disconnect? The “Across the Board” column in the NYSE Magazine second-quarter edition suggests three areas of pre-emptive action on executive compensation issues:

  • Publish readable proxies. “Too often proxy statements are viewed as – and written like – legal documents,” NYSE quotes Ken Bertsch, president of the Society of Corporate Secretaries and Governance Professionals. “… too many companies still try to cram too much information into too few pages with very little explanation about compensation policies and how they were developed.” Bertsch cites the CD&A in General Electric’s proxy as a model of clarity.
  • Launch a campaign. More companies are taking their governance and executive compensation stories on the road – meeting with big investors or holding conference calls on pay issues. Stephen Brown, TIAA-CREF’s governance guru, says companies like Avon Products are sending senior governance officers or independent board members to these meetings. (TIAA-CREF has published extensive policies and advice to companies here.)
  • Welcome shareholder views. Communication is, after all, two-way. Patrick McGurn of Institutional Shareholder Services cites the example of Pfizer inviting portfolio managers in to meet with execs for open-ended discussions on governance, pay and compliance issues. PFE has a Contact Our Directors page on its website, too. McGurn also suggests a “fifth analyst call” every year – to discuss governance issues rather than quarterly numbers.

My experience has been that corporate lawyers often guide the strategy on governance issues – and micromanage tactics like the wording of proxy statements. IR professionals, whose job is to communicate, should be more involved.

What’s your thought? Any best practices or examples of how to interact with institutional investors (or retail, for that matter) on governance and pay issues?

© 2011 Johnson Strategic Communications Inc.

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