BY BRETT CHRISTIE, WORLDATWORK
Many United States-based companies are in favor of the Securities and Exchange Commission’s (SEC) proposed rule amendments governing proxy solicitation and would respond to proxy voting recommendations if given the opportunity to do so.
This is according to a survey of 105 publicly traded U.S. companies by Willis Towers Watson, which found that 83% of companies believe the regulations, if finalized, will cause proxy advisors to be more transparent.
In November, the SEC proposed amendments to its proxy solicitation rules to improve the accuracy and transparency of proxy voting advice. The proposed rule changes would require proxy advisors to disclose any potential conflicts of interest to clients, allow companies to provide feedback on proxy advice (including factual errors) before it is disseminated to institutional shareholders, and permit companies to attach their own hyperlinked statement to the proxy advisors’ recommendations.
The survey found that 40% of companies would communicate directly to institutional investors with hyperlinked statements to proxy advisor recommendations if they wanted to provide further communication on their executive pay philosophy. More specifically, 81% would speak up if they found a factual error; six in 10 (59%) companies consider this to be a big problem.
Additionally, if companies disagreed with proxy advisor testing methodology, or if they received against voting recommendations, nearly half (46% and 47%, respectively) said they would provide feedback.
“We expect companies will welcome the rule changes, if enacted, and take advantage of the opportunities to improve their communication with proxy advisory firms,” said Don Delves, North America head of executive compensation at Willis Towers Watson. “These proposals are, above all, about greater transparency and clarity around pay issues and recommendations. They could go a long way toward eliminating errors and ultimately help shareholders make informed proxy voting decisions.”
The poll also revealed that companies and their compensation committees will be placing greater emphasis on people issues over the next few years. This follows an earlier SEC proposal to expand Form 10-K disclosure of human capital measures to enhance shareholder understanding of their importance.
“Investors and boards need to be concerned with the risks associated with human capital but also recognize the distinct upside of human capital in driving enhanced and sustainable value,” wrote Scott Cawood, president and CEO of WorldatWork, in an article for the Agenda.
More than nine in 10 survey respondents (92%) said managing human capital resources will be important to their success over the next three years, compared to 71% over the past three years. Additionally, nearly three in four respondents (72%) believe their compensation committees will oversee fair pay and gender pay issues in the next three years, compared to 52% that do so currently. More than half (54%) also said their compensation committees will be responsible for inclusion and diversity issues in the next three years, up from 45%, currently.
“The ongoing push to embrace inclusion and diversity initiatives and other critical human capital issues, such as fair and gender pay, is clearly having an impact at all levels of organization, and this includes compensation committees,” Delves said. “While they historically oversee total rewards and succession planning programs, some will broaden their focus to include additional human capital elements of culture, reskilling and wellbeing — and their impact on organizational performance.”