Time for a Say-on-Pay

The proxy statements for 2022 are arriving, and we debate anew: “How much is too much?”

Mandated under the Dodd-Frank Act, say-on-pay is a nonbinding, advisory shareholder vote on the compensation policies for the company’s executive officers. In their proxy statement, companies must disclose how their compensation strategy has considered the results of their most recent say-on-pay vote, but the law does not require the company to make any changes based on the vote. Nonetheless, the say-on pay vote is a barometer for shareholder perception of the company’s executive compensation practices.

For instance, Apple proposes a $99 million pay package for CEO Tim Cook this year, but shareholder advisory firm ISS has recommended a “no” vote. I understand the basis for ISS’ recommendation is because it is triple the package of peer median pay and serves no purpose for retaining Cook, as he will earn shares in retirement. On the contrary, Glass Lewis, the other large proxy advisor, recommended supporting the package.

It is almost certain that the Apple say-on-pay resolution will have a majority of support as most shareholders routinely vote in favor of these packages. This will have a cascading effect on executive compensation in 2023 as peer companies will try to keep up. Cook’s proposed salary may simply be keeping up with the Joneses as Alphabet’s CEO Sundar Pichai was awarded more than $280 million in 2019.

Last year, however, bore seeds of hopeful news. Failure rates on compensation packages in 2021 were considerably higher than 2020 and 2019 levels as numerous companies experienced a “failed” vote for the first time, including AT&T, Marathon, Starbucks, and Walgreens. A more complete list of failed say-on-pay votes can be found here.

There are, of course, better ways to ask the question than “How much is too much?” We hosted a webinar last year on Pay and Wealth Disparity. One of the participants, Rosanna Landis Weaver, will host her annual webinar on Thursday: “100 Most Overpaid CEOs: Are Fund Managers Asleep at the Wheel?” (You can register here.) As well, one can turn to the AFL-CIO’s Executive Paywatch.

SGI has a long history in this space. From our founding in 1973, Fr. Mike Crosby, O.F.M., Cap. advocated for a living wage. SGI consistently advocates for increasing the federal minimum wage.

In 2013, President Obama said, “Rising income inequality is the defining challenge of our time.” Pope Francis, in the same year, noted, “How can it be that it is not a news item when an elderly homeless person dies of exposure, but it is news when the stock market loses two points?” As a consequence, one of Fr. Mike’s final efforts was a campaign for pay equity in 2014, filing shareholder resolutions with 12 retailers. The SEC allowed companies to omit the resolution based on ‘micro management.’ SGI members continue to challenge retailers and restaurants to pay living wages, for their own workers and for those in their supply chain.

In hopes of building an economy that works for the many, not one that concentrates more and more wealth in the hands of a privileged few, we keep coming back to this issue to see if there are new ways that we can address income and wealth disparity. The Franciscan Sisters of Perpetual Adoration proposal in 2021 on racial equity & starting pay at the Walmart AGM obtained strong shareholder support for a first-time resolution (12.5% of total shares or 27% of independent shares voted). SGI members have joined this year’s ICCR campaign asking restaurants to raise their sub-minimum wage for tipped workers.

Increasingly, economists have come to see that wealth and income disparity harm the economy. Rising concern for pay and wealth disparity in proxy voting and changes at the SEC lead us to think the tide may be shifting, and so we call upon shareholders to act.