Companies face increasing pressure over excessive executive pay amid increasing levels of scrutiny from shareholders and a more robust disclosure rule from the Securities and Exchange Commission. Investor scrutiny is expected to ramp up next proxy season, lawyers say, as shareholders will have more accessible information at their fingertips under the SEC’s recently finalized rules requiring companies to report more detailed pay-versus-performance data in their proxy statements.
Many companies are still wrapping their heads around the rule, lawyers said, and some businesses feel unprepared to comply by the next proxy season. “All of a sudden it’s really due in under six months,” said Deb Lifshey, managing director at executive compensation consultancy Pearl Meyer.
Shareholder discontent with executive pay generally rises and falls with a company’s financial performance, lawyers say, which could explain why scrutiny appears to be up now amid this year’s significant stock market decline.
But there’s more to it than just economics, Lifshey said, as evolving ESG priorities might also drive scrutiny from a range of stakeholders. Expectations from employees and shareholders “are different now” because of shifting ESG priorities and a changing workforce, said Lifshey. The pandemic also played a part in driving heightened economic and social concerns over outsized CEO pay.
The pushback can be about a lot more than the dollar amount. Sometimes, shareholders reject an executive pay proposal because they’re disgruntled over social or environmental concerns at a company, for example over improper mining practices, Lifshey said.