Emily Chasan
Senior Editor

Investor outreach is playing a significant role in companies improving say-on-pay results, according to an analysis of the early proxy season this year by law firm Skadden, Arps, Slate, Meagher & Flom.

Companies that passed say-on-pay with low shareholder support last year are seeing higher margins in the current season, and investor outreach, not a change in pay policies, may be the reason why.

“Practically the only thing that moved the needle at all is personal outreach to shareholders,” said Regina Olshan, a partner in the executive compensation group at Skadden in New York.

In its review, Skadden found that the mix of companies that received less than 70% of shareholder support was changing, as several companies have increased their votes significantly this year.

Seed company Monsanto increased its “yes” votes from 65% to 85%, without making any significant changes to its compensation practices from 2011. But the company said in its proxy documents that it reached out to the 50 largest shareholders who voted “no” on pay in 2011 to help improve their understanding of the company’s compensation programs.

Of the first 160 companies in the Russell 3000 to report their annual meeting results this year, shareholders voted down pay plans at only two companies: Actuant Corp and International Game Technology. Both had received “against” recommendations from top proxy advisory services firm Institutional Shareholder Services, which raised concerns about incentive plans to named executive officers. Actuant was not required to conduct a vote for 2011, and International Game had passed say-on-pay in 2011.

Meanwhile, none of the Russell 3000 companies that failed say-on-pay in 2011 have failed again so far this year. Both Jacobs Engineering and Beazer Homes, which failed in 2011 and reached out to their investors about the results, made significant changes to their compensation agreements. Both companies received high rates of approval this year. Other companies, like SurModics Inc. and Headwaters Inc., who barely passed-say-on-pay last year increased their vote percentages to 92% and 77%, respectively, this year after eliminating executive tax gross-ups.

Still, the review showed that the early results are about on pace with full results from last year. Skadden found that 68% of the early companies have passed say-on-pay with over 90% support, 23% received support between 70% and 90%, 8% have passed with 50% to 70% support and 1% have failed.

According to consulting group Semler Brossy, as of June 23, 3011, – at the end of the proxy season last year – 71% of companies in the Russell 3000 had more than 90% approval, 23% fell into the 70%-90% group and 6% were in the 50%-70% group, while 2% failed.

Modest growth in shareholder returns for 2011 may also be contributing to higher say-on-pay votes for some companies, due to the link between pay and performance, said Joseph Yaffe, a partner in the executive compensation group at Skadden in Palo Alto, California.

“When the dust settles and we’ve got several years of say-on-pay results to analyze and consider the impact on corporate governance, my inclination is that the major byproduct is going to be significantly more interaction with investors,” he said.

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