Investor support for CEO pay reflects rise in engagement

Investor support for "say on pay" proposals has risen significantly, reaching 91.5% among companies in the S&P 500 and Russell 3000 indices during the 2024 proxy season, according to a report by Diligent Market Intelligence.

This development occurs amidst a backdrop of record-high CEO compensation, with median granted pay for CEOs of S&P 500 companies increasing by 8.9% to USD $15.9 million in 2023.

Similarly, median pay for CEOs within the Russell 3000 rose by 8.8% to USD $6.6 million, while ASX 300 CEO compensation saw a 6.6% rise to USD $3.07 million.

"The record levels of support we have observed reflect the work that has gone into disclosure and investor engagement," said Josh Black, Editor-in-Chief of Diligent Market Intelligence. "We also saw stock markets in the U.S. increase to deliver major gains in 2023 when compared to the negative returns that were recorded in 2022."

In the UK, support for management resolutions on executive pay reached a record 94.7% in the first nine months of the year. This is accompanied by increases in CEO pay, with the median granted pay for FTSE 100 CEOs rising nearly 6% to GBP £5 million, and realised pay increasing by 4% to a median of GBP £3.9 million.

The Diligent report highlights three main themes for boards and investors.

First, engagement and transparency are crucial for securing investor backing for pay plans. Active and meaningful engagement and improved disclosure practices align pay plans with inflation, performance rewards, and talent retention strategies, resulting in greater investor support.

Additionally, there is an increased focus on sustainable business practices and long-term goals in discussions with remuneration committees. This emphasis affects pay structures and leads to more hybrid models that reflect these values.

Another trend is the rising use of targeted votes against board committees by institutional investors to advocate for stronger governance.

Support for nominating and governance committee chairs averaged 92% at S&P 500 companies and 95.6% at FTSE 100 companies. This focus is intended to enhance diversity, board independence, and responsiveness to shareholder votes, while chairs of audit and compensation committees face less opposition due to separate ballot items at annual meetings.

Concurrently, there has been a decline in support for environmental and social (E&S) shareholder proposals in the U.S., prompting more companies to turn to the Securities and Exchange Commission's (SEC) no-action process. A record-breaking 183 companies sought no-action relief this proxy season, an increase from 116 the previous year. The SEC granted 51% of these requests, up from 47% last season and 29% in 2022, providing more relief to issuers.

Governance proposals, however, have gained support, with approval rates averaging 77% in the Russell 3000 and 65% in the S&P 500.