While not solely compensation focused, failure to include a shareholder proposal on the company's proxy could drive negative recommendations against members of a board’s governance committee, despite the SEC's recent change in how it handles shareholder proposals. In September 2019, the SEC stated that sometimes it may respond orally to company requests to exclude a shareholder proposal, or it may decline to state a view altogether. The SEC had advised that declining to state a position should not be viewed as a requirement that the company include the proposal. However, Glass Lewis's 2020 policies state that it will generally recommend voting against all governance committee members when a company has omitted a shareholder proposal from its proxy and:
- The SEC staff verbally permitted the exclusion, but there is no “written record” of this determination provided by the SEC and the company failed to provide disclosure regarding the no-action relief; or
- The SEC staff declined to state a view.
Glass Lewis stated that it will recommend against all members of the compensation committee where the board adopts a frequency of say-on-pay votes other than the vote approved by a plurality of shareholders. In a year following low (80% or below) shareholder support on say-on-pay, Glass Lewis expects that companies include a robust disclosure in the company’s proxy statement of engagement activities and specific changes made in response to shareholder feedback. Absent such robust disclosure, Glass Lewis may recommend against the company’s upcoming say-on-pay proposal. Negative vote recommendations could be escalated to the compensation committee if it appears there is a history of shareholder discontent, or the vote result was particularly low, and there is no evidence of a substantial effort by the board to engage shareholders.
Regarding executive pay, Glass Lewis clarified that it would review any significant changes or modifications to compensation plans, including changes made after the fiscal year end and one-time awards. Additionally, the document states that Glass Lewis expects to see extensive discussion in cases where a company has applied upward discretion, including lowering goals mid-year or increasing the calculated payouts. The Guidelines go on to state that companies should provide clear reconciliations between non-GAAP or company-specific metrics and GAAP figures in audited financial statements. Glass Lewis also clarified its approach to new, renewed, or amended executive employment agreements, highlighting several potential pitfalls.
Heading into the 2020 proxy season, companies should be aware of these policies as several of the changes could drive an inadvertent negative vote recommendation due to disclosure concerns. Glass Lewis appears to be asserting that its policies may go above and beyond what is required by regulation.