Recap of the 2024 Say on Pay Season

Key Takeaways

• The number of failed S&P 500 SOP proposals (n=4) is tied with an all-time low previously observed in 2015
• Improvement in 1- and 3-year TSR performance ending in FY2023 compared to the prior period TSR performance may be a contributing factor to the increase in shareholder approval rates of executive pay
• 2024 ISS opposition to SOP proposals is also at an unprecedented low, while Glass Lewis SOP “against” rates have returned to historical norms after a rise in 2023

Pay Governance has compiled information on Say on Pay (SOP) outcomes and related total shareholder returns (TSR) for S&P 500 companies since the dawn of the SOP era, which dates to the 2011 proxy season. Based on our analysis of these data, this article places into context the recent results of the 2024 SOP season compared to historical trends. We find that companies have had greater success in the current SOP season, with ISS opposition to SOP proposals and the number of companies failing SOP at record lows.

Background: Say on Pay 2011-2024

Figures 1-3 below include the history of S&P 500 company SOP outcomes beginning in 2011 through July 31, 2024.

Figure 1: Unfavorable S&P 500 SOP Proposals by Year [1]

As of July 31, 2024, our analysis of the current SOP season reveals a significant decrease in the number of failed proposals among S&P 500 companies. The failure rate of 0.9% is trending towards the low rates last observed in 2015 and 2016. After reaching a peak of 22 failed proposals in 2022, the number of failed proposals dropped to 13 in 2023 and has further declined to just 4 so far in 2024 (equal to the all-time low observed in 2015). The current decline in failed SOP proposals may be attributed to improved 1- and 3-year TSR performance, company attention to shareholder feedback on executive pay programs, and positive shareholder sentiment towards the market in general.

Additionally, the percentage of SOP proposals receiving ISS opposition in 2024 year-to-date reached a historic low (7.7%) following a recent uptick in 2022 (12.5%) and a return to “normalcy” in 2023 (9.5%). The decline in ISS “against” SOP recommendations is also likely contributing to the decline in failed SOP proposals in 2024. This said, we will continue to monitor SOP outcomes through the end of the proxy season.

Figure 2: S&P 500 Historical 1-Year TSR 1 & SOP Outcomes [1]

‍Figure 3: S&P 500 Historical 3-Year TSR 1 & SOP Outcomes [1]

Findings from our previous Viewpoint titled, “The 2023 Say on Pay Season – Outcomes and Observations,” [3] showed that the 2022 and 2023 SOP seasons ran counter to the premise that TSR performance should be correlated with SOP proposal success. Although TSR performance was strong for the period ending in 2021
(1- and 3-year TSR of +27% and +24%, respectively), the number of failed SOP proposals in 2022 spiked to 22. Failed SOP proposals in 2023 unexpectedly decreased to 13 when TSR performance declined relative to the prior period (1- and 3-year TSR ending in 2022 was -19% and +6%, respectively).

However, for 2024 the linkage of TSR performance to SOP proposal success holds true. For the period ending in 2023, 1- and 3-year TSR results (+24% and +8%, respectively) improved over the prior period and failed SOP proposals dipped to just 4 companies.

Glass Lewis SOP Recommendations

With the unprecedented decline in failed SOP proposals and reduced ISS opposition to SOP proposals observed in the current season, we also reviewed Glass Lewis SOP vote recommendations to assess if a similar trend would be identified.

As expected, Glass Lewis 2024 SOP recommendations (12%) are tracking below 2023 levels (17%). However, an anomaly was observed during 2023 when Glass Lewis opposed SOP proposals at a higher rate than recent history. Unlike ISS, the spike in Glass Lewis “against” recommendations in 2023 tracks with relatively worse TSR performance during the corresponding period.

Prior to 2023, the Glass Lewis SOP “against” rate consistently ranged from 12% to 14%. Given that the Glass Lewis 2024 opposition rate of 12% tracks with historical levels, it appears that Glass Lewis’s recommendations are not particularly correlated to the decline in failed SOP proposals in 2024.

Figure 4: S&P 500 1- and 3-Year TSR 1 & Proxy Advisor “Against” SOP Recommendations [1] ,[4]

Conclusion

There is a notable decline in the number of failed S&P 500 SOP proposals in 2024. This may be associated with improvement in TSR performance compared to the prior period, company responsiveness to shareholder feedback, and the decline in ISS opposition likely resulting from the prior two factors. Given that the Glass Lewis opposition rate in 2024 is similar to historical levels, Glass Lewis’s recommendations appear to be less correlated to S&P 500 company SOP success this year. We are continuing to monitor the rate of failed SOP proposals through the remainder of 2024 and in future years to determine if this year’s trends are part of a new normal of increased shareholder satisfaction with executive pay programs or an aberration that will reverse course.

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1TSR data for the S&P 500 were collected from S&P’s Capital IQ database.(go back)

2ISS vote recommendations and SOP vote outcomes were collected from ISS Corporate’s Voting Analytics database.(go back)

3Perla Cuevas, Jose Lawani, Joe Mallin, and Linda Pappas. The 2023 Say on Pay Season – Outcomes and Observations. Pay Governance. September 14, 2023.

https://www.paygovernance.com/viewpoints/the-2023-say-on-pay-season-outcomes-and-observations.(go back)

4Glass Lewis vote recommendations were collected from the Diligent Market Intelligence database.(go back)