From Opposition to Action: S&P 500 Company Responses to Unfavorable ISS Say on Pay Recommendations

In our previous Viewpoint, “Recap of the 2024 Say on Pay Season,” [1] we discussed the historically low rate of Institutional Shareholder Services (ISS) opposition to Say on Pay (SOP) proposals at S&P 500 companies in 2024. In our follow-up Viewpoint, “Record Low ISS S&P 500 Say on Pay Opposition: The Trends Behind the Decline,” [2] we reported that the general reduction of outlier CEO pay and improvement in compensation committee responsiveness to shareholder concerns likely contributed to reduced ISS SOP opposition. In continuation of our 2024 SOP Viewpoint series, we explore actions S&P 500 companies took in response to ISS SOP opposition and how these actions were received by ISS and shareholders. We also summarize key themes on which we anticipate proxy advisors and investors will focus in the 2025 SOP season.

Overview

For the sample of 47 S&P 500 companies that received ISS opposition to 2023 SOP proposals, we researched responses as disclosed in 2024 proxy statements. Actions that resulted in improved ISS and shareholder support in 2024 were:

1.Demonstrating shareholder engagement and responsiveness

2.Revising incentive plan designs and enhancing disclosure

3.Addressing pay practices that are regarded as “problematic” by ISS

As a result of the above actions, approximately two-thirds of the companies improved their SOP outcomes and received a favorable ISS recommendation in 2024. The remaining one-third of the companies received consecutive ISS opposition to SOP proposals.

We analyzed the S&P 500 companies’ actions taken in 2024 to address 2023 ISS SOP opposition by dividing our sample into three groups:

1.Companies that received ISS SOP support in 2024 following a 2023 SOP outcome of ≥70%shareholder support, representing 19% of our sample.

2.Companies that received ISS SOP support in 2024 following a 2023 SOP outcome of <70% shareholder support , representing 47% of our sample.

3.Companies that received consecutive ISS SOP opposition in 2023 and 2024, representing 34% of our sample, regardless of the 2023 SOP vote outcome.

ISS closely evaluates the response of compensation committees to shareholder SOP concerns when support levels are <70%. As such, there is less external pressure from proxy advisors and investors to take significant action when prior year SOP support was deemed sufficient by ISS’s standards (≥70%). When SOP support is <70%, there can be a pathway to SOP success the following year through meaningful actions that are demonstrated in disclosure.

Across all companies in our sample, average SOP shareholder support increased by 26 percentage points (see Figure 2) from 2023 to 2024; in fact, all but three companies in the total sample experienced an improvement in the SOP vote outcomes. Companies that had low support the prior year and ISS support in 2024 (Group 2) had the largest year-over-year increase in support (+44 percentage points).

Figure 2: Change in SOP Shareholder Support^[3]

‍Strategies for a Favorable SOP Outcome

Across all three groups, we observed consistent themes in the approaches companies took to respond to unfavorable SOP outcomes. Among companies that received the greatest improvement in SOP support, we identified the following strategies:

1. Demonstrating Shareholder Engagement and Responsiveness

ISS expects companies that receive <70% SOP support to engage with shareholders to understand their concerns and take meaningful actions in response. Among all S&P 500 companies that received ISS SOP opposition in 2023, two-thirds of companies were expected to demonstrate responsiveness to shareholders.

All companies that had <70% SOP support in 2023 and received a favorable SOP recommendation from ISS in 2024 were deemed as being sufficiently responsive by ISS. In contrast, poor responsiveness was the most common reason for consecutive ISS SOP opposition among companies that had <70% SOP support in 2023. Each of these companies that received ISS opposition disclosed shareholder outreach efforts, but ISS considered the response to be inadequate, typically because specific actions were not taken to address investor concerns.

Companies with detailed shareholder outreach disclosure on average engaged with investors representing about 60% of shares outstanding. Robust disclosure also included detailed shareholder feedback and specific actions taken in response to investor input, typically in the form of an easily digestible table with “What We Heard” and “What We Did (in response).” Many companies also provided a letter addressed to shareholders from the compensation committee chair or members describing actions taken in response. As shown in Figure 3, these disclosures were more prevalent among companies receiving a favorable ISS recommendation and nearly universal for companies that effectively demonstrated responsiveness.

Figure 3:

‍2. Incentive Plan Design and Disclosure Enhancements

Changes to incentive plan designs and/or enhancing disclosure were keys to the successful SOP outcomes for the S&P 500 companies in our sample.

Companies that received a favorable ISS recommendation in 2024 took different approaches depending on the level of SOP support received in 2023 (see Figure 4). For companies with prior SOP support of ≥70% (Group 1), incentive plan design changes and forward-disclosure of program changes were most prevalent (78% and 44%, respectively). Companies with <70% SOP support (Group 2) similarly revised incentive plan designs and forward-disclosed changes (82% and 36%, respectively) but also commonly provided enhanced disclosure (64% of companies). Most of the companies that received consecutive ISS opposition (Group 3) did not make incentive design or disclosure changes.

Examples of annual incentive plan design changes disclosed by companies in our sample included changes to payout opportunities; introduction, removal, or reweighting of metrics; [A1] and removing or reducing discretionary components. Examples of long-term incentive (LTI) plan design changes disclosed by companies in our sample included reducing or capping maximum payout opportunities; introduction, removal, or reweighting of metrics; extending performance measurement to a multi-year period; and increasing the proportion of performance-based equity in the organization’s LTI mix. Disclosure enhancements commonly included expanded rationale for how incentive payouts were determined; greater transparency around goal setting and specific goals at threshold, target, and maximum; and demonstrating how executive pay is linked to company performance and shareholder value creation.

3. Addressing “Poor Practices”

Investors and proxy advisors are generally more supportive of companies that eliminate or commit to eliminating practices that have been criticized as poor or problematic. These actions were more common among the sample of companies that received ISS SOP support in 2024 following ISS SOP opposition in 2023 (see Figure 4). Examples of future commitments commonly offered included eliminating or significantly limiting the use of one-time awards, not amending outstanding equity awards unless there are extraordinary circumstances and eliminating or limiting positive discretion in incentive payouts. Examples of other practices that were addressed by companies in our sample included adopting or amending a severance policy prohibiting or limiting cash severance, moving from single to double trigger equity vesting upon a change in control, revising the compensation benchmarking peer group, reducing perquisite values, and increasing stock ownership guidelines.

Figure 4:

Expectations for the 2025 SOP Season

There are several key themes on which we expect proxy advisors and investors to focus in the 2025 SOP season. We anticipate proxy advisors and investors alike will continue to be vigilant for large one-time awards and will scrutinize the rationale and design features of such awards. In addition, we expect that upward discretion or positive adjustments when determining incentive payouts will be closely evaluated. For companies that ISS deems to have pay for performance misalignment, ISS will have an increased focus on performance-vesting equity award designs, rigor, and disclosure. Providing robust disclosure and having simple pay designs that align with shareholder value creation and company strategy, while avoiding executive pay and governance missteps, will continue to be a successful path to a favorable SOP outcome.

As evidenced in the prior SOP season, for companies that had SOP support of <70%, ISS will continue to focus on compensation committee responsiveness as demonstrated through robust disclosure of the outreach process and specific actions that directly address investor concerns. After an unfavorable SOP outcome, there is a reliable formula for SOP success, achieved through meaningful actions that are clearly demonstrated in proxy disclosure.

General questions about this Viewpoint can be directed to Linda Pappas ( linda.pappas@paygovernance.com).

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[1] Perla Cuevas, Jose Lawani, Linda Pappas, and Olivia Wright. Recap of the 2024 Say on Pay Season. Pay Governance. August 29, 2024. https://www.paygovernance.com/viewpoints/recap-of-the-2024-say-on-pay-season

[2] Perla Cuevas, Jose Lawani, Linda Pappas, and Olivia Wright. Record Low ISS S&P 500 Say on Pay Opposition: The Trends Behind the Decline. Pay Governance. October 10, 2024. https://www.paygovernance.com/viewpoints/low-iss-sp500-sop-opposition-trends-behind-decline

[3] SOP vote outcomes and ISS vote recommendations were collected from ISS Corporate’s Voting Analytics database.

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