THE WALL STREET JOURNAL.

CFO Journal.

June 10, 2013, 1:45 PM ET

Failing Say-on-Pay Puts Directors at More Risk

Maxwell Murphy Senior Editor

Corporate directors generally receive overwhelming investor support, but not as much when their companies’ pay practices raise eyebrows, according to research from proxy processor Broadridge Financial Solutions Inc.

More than 90% of directors at companies with market capitalizations above $2 billion garnered more than 90% of voted shares in favor of their election, according to Broadridge’s first ProxyPulse report, prepared jointly with the PwC’s Center for Board Governance and released last week. The report studied shareholder voting trends from the beginning of the year to late April, representing about 11% of the total number of meetings slated for this proxy season.

Support was less overwhelming for directors at companies with market caps of $2 billion or less, the report found, with just 76% of directors receiving more than 90% approval of voted shares.

But when it came to so-called say-on-pay votes, which allow holders an advisory vote on corporate compensation practices, investors showed less love. About 13% of companies that held their votes during the period studied didn’t receive even 70% approval for their pay packages. According to Broadridge and PwC, proxy advisory firms “more closely scrutinize” compensation plans that fail to achieve 70% support.

Broadridge drilled deeper into the numbers for CFO Journal and found that support for both directors and compensation was slightly lower this year. However, the results through late April are only a small sample, so this gap may narrow or be erased as proxy season progresses, cautioned Chuck Callan, senior vice president of regulatory affairs for Broadridge.

That said, Broadridge said there is a “direct correlation between negative sentiment on pay plans and negative sentiment toward directors.”

Of the 16 companies Broadridge identified that failed to receive a majority in its say-on-pay vote, or 6.3% of 253 votes, five of them saw a total of 23 directors fail to gain a majority of favorable votes. And of 12 companies to have one or more directors fail to receive a majority, or 2.7% out of 446 holding director votes, five of them also failed their say-on-pay vote.

For all of last year, 97 out of 2,312 firms that voted on say-on-pay, or 4.2%, failed, while 88 of 4,211 companies with director votes, or 2.1% of the total, had one or more directors who didn’t receive a majority of votes in favor of their election.