(The following post originally appeared on ONSecurities, a top Minnesota legal blog founded by Martin Rosenbaum to address securities, governance and compensation issues facing public companies.)
I have been attending the Proxy Disclosure Conference and Say-on-Pay Workshop sponsored by CompensationStandards.com (subscription site) in San Francisco. The Conference and Workshop were unique, in that the speakers included representatives of:
- Proxy advisory firms, including ISS and Glass Lewis.
- Institutional investors, including CalSTRS, T. Rowe Price and BlackRock.
- Proxy solicitors, including Georgeson and Innisfree M&A
- Compensation consultants, including Compensia and Towers Watson.
The panel discussions covered proxy statement drafting issues and compensation structure issues in the wake of the first year of Say-on-Pay. I will be blogging about key takeaways from several of the sessions.
However, one key point came out time after time. The key to a clear victory in the Say-on-Pay vote is being able to demonstrate that the company practices “pay for performance”. (Ira Kay, compensation consultant with Pay Governance, calls it “p4p”.)
Of course, nearly every company says it practices pay for performance. However, there are many possible definitions of both “pay” and “performance”. The key is to adopt definitions that make sense in light of the company’s business and situation, and to be able to explain the link between pay and performance in a clear and compelling way. This will be especially important for companies that failed to achieve a majority positive vote in 2011, or companies that ended up in what speakers called the “Red Zone” – a positive vote in the range of 51% to 80%.
Other distractions, such as the frequency vote (Say When on Pay) and the mechanics of the Say-on-Pay vote, will fall by the wayside in 2012. This will just highlight the importance of the biggest compensation and governance issue in the coming months – p4p.