This week, three S&P 500 companies failed to achieve majority support brining the total number of failures up to six and equalizing the number of failures of all of 2017 (6) while eclipsing 2016 (5) and 2015 (2) numbers. To date, 310 S&P 500 companies have reported say on pay results with 304 (98.06%) achieving majority support. The average say on pay support for S&P 500 companies is 91.34% with a median of 94.55%. Among the week’s more interesting results include:
Halliburton Sputters to Say on Pay Failure as Retention Issues Mount: A year after only receiving 66.4% shareholder support while getting a “For” recommendation from proxy advisory firm ISS, oil field services company Halliburton stumbled to a say on pay failure, receiving only 42.6% support. During the previous year, the company navigated a CEO transition promoting its President and former COO to the role on June 1, 2017. Over the past few years, retention issues among key executives and company performance problems have plagued the company. Regarding the performance issues and the impact on compensation, due to the company’s performance problems, the company’s short-term incentive had a single target of Cash Value Added but the program targeted a negative value. Additionally, the company’s latest LTI cycle paid out despite the absolute result also being negative. Thus, the company paid out maximum payouts based on negative results with the board refusing to apply negative discretion. This earned significant pushback from proxy advisory firms which cited it as a headline in recommending “Against”. The poor performance connects to the retention issues. In the proxy, the company noted that “over twenty-five of our former executives have departed to become CEOs and/or senior executives of other oilfield services companies” and that during off-season shareholder engagement sessions “[s]tockholders sought clarity around the Board’s steps to protect the stability of the senior leadership team on a go-forward basis”. To help prevent retention problems, the company entered into new non-compete and non-solicitation provisions with several executives, extending the terms from two to four years. The NEOS received additional time-vesting grants in connection with the employment agreements. In addition, the new CEO received a maximum and non-prorated annual incentive award despite being promoted mid-year and the former CEO transitioned into a new role as executive chair receiving a $2M cash payment and $15M which vests over four installments. Given the company’s problems, the shareholder opposition and say on pay failure was not surprising. What is a bit interesting is the interplay between the investor concerns with the retention of key executives and then the shareholder and proxy advisory firm opposition to the company taking steps to address the issue.
Shareholders Not Playing Around with Mattel’s Pay Plan – Vote No: Poor performance for struggling Mattel has led to a say on pay failure as the company only received 45.8% support – about half what the company received last year. As disclosed in the company’s proxy and in a supplemental proxy filing, poor performance has resulted in no payouts under the LTI plan since 2014 with no prospect of an award for the 2016-2018 and 2017-2019 cycles. Further, the company notes that all options are underwater. With the company’s annual incentive plan, 2017 saw no payout and the previous three years saw under target payouts. Likely leading to proxy advisory firm opposition, however, was the company’s new CEO’s compensation package, including a make-whole-grant which was viewed by proxy advisors predominately time-vested due to its reliance on stock options. However, as the company points out in its supplemental filing, the options given in the make-whole-grant cliff-vest after three years and only if Mattel’s relative TSR performance vs the S&P 500 is at or above the 65th percentile. An additional point of contention with proxy advisory firms was that the company made a mid-year adjustment to performance goals without a correlating downward adjustment to award potential. However, as the company points out in the supplemental proxy, the company did put caps on awards (was acknowledged by proxy advisors) while also noting the award did not yield a payout anyways.
Mattel is a clear case of say on pay operating as a protest “say on performance” vote which, when combined with a new CEO – a frequent point of conflict with proxy advisors – created the perfect say on pay storm.
Shareholders Rebuke Embattled Wynn Resorts Through Say on Pay Vote: A year of negative headlines which saw Wynn’s former CEO and Chairman Steve Wynn leave the company after numerous confirmed reports of highly inappropriate conduct left company shareholder voicing their frustration by providing the company with only 20% shareholder support for say on pay – the lowest in the S&P 500 this year. As is not uncommon for companies with well founder CEOs, Wynn Resorts has a history of high CEO pay and low shareholder support. In addition to the extremely negative publicity facing Mr. Wynn and proxy contest launched by Mr. Wynn’s ex-wife who was seeking control of the board, Wynn Resorts provided Mr. Wynn, despite his departure, with a significant short-term incentive payout of $15M in cash and another $15M in stock. Additionally, the company’s new CEO received a large time-vesting equity award which was later amended to be 60% performance which vests over four years. The company, however, does not state whether there will additional awards will be granted during the years. Regardless of the compensation decisions at Wynn in 2017, given the history of high compensation and the controversy, the company was almost destined to encounter the shareholder opposition.