Despite taking place during the COVID-19 pandemic, the 2020 proxy season exhibited voting trends and results that were broadly in-line with recent years, largely because the impact of COVID on 2020 results and compensation was not significant for many calendar-year companies. Those impacts will be front and center for 2021, and we anticipate accelerated ESG trends and shareholder proposals by activist investors. These issues will receive additional scrutiny during the 2020 presidential campaign and post-election, depending on the outcome.
A recent piece by CEO advisory firm Teneo, featuring the familiar voices of Martha Carter (formerly of ISS) and Matt Filosa (formerly of MFS Investments) among others, highlights 20 imperatives for 2020 shareholder engagement efforts by companies. Guidance includes:
- Diversity data – Is your company transparent with data on employee diversity and pay gaps?
- Diversity goals – Should your company consider setting or disclosing concrete goals for improving diversity?
- Executive salary reductions – Many companies that disclosed temporary reductions in executive pay are now considering restoring pay. Will investors feel the company took sufficient steps in line with what the broader employees experienced? Will “make whole” awards undo goodwill? The use of one-time awards may be more “tolerable” to investors or proxy advisors in this environment but will be considered against the broader workforce issue.
- Consistent grant values – Will granting more shares to match previous grant values increase windfall concerns? Will lowering grant values drive retention/motivation concerns?
- Modifications –Enhanced disclosure may be needed to support the exercise of discretion or incentive plan goal modifications. Scrutiny from investors and proxy advisors will be laser focused on the use of discretion, modifying goals, shifting from performance-based to time-based equity, or repricing options (which might specifically cross a red line).
- Above target awards – While a company may outperform peers on a relative basis, there will be enhanced public perception risk if relative TSR awards pay out above target despite negative absolute TSR.