Compensation committee checklist: The fall agenda: begin framing your 2012 proxy statements now ... and take other key action steps.

• Author: Lippincott, Todd
• Position: COMPENSATION COMMITTEE

ALTHOUGH MOST COMPANIES Came through their 2011 say on pay votes with strong results, few compensation committees arc resting on their laurels. Most of the committees with which we work will have a full plate of issues awaiting them during the fall, including wrapping up the 2011 incentive year and getting ready for 2012 pay decisions.

Recent Towers Watson research underscores that there's little complacency among committee members today. Of the U.S. public companies we surveyed in June, almost all---91%---were planning or considering changes in their executive pay-setting processes in preparation for the 2012 proxy season. Our findings suggest that say on pay is a continuing catalyst for the refinement of executive pay programs and governance processes at many companies.

The short list

Based on our work with a large number of committees, here's our short list of the areas committees should consider focusing on in their fall meetings:

* Review the lessons learned from 2011. Assess both what went well in the say-on-pay vote and possible areas for improvement. Ensure a review of relevant ISS and other proxy voting advisor reports and check the accuracy of any negative recommendations or observations. Even if the advisors recommended a "yes" vote on say on pay, there may be cautionary language about pay components that could trigger future concerns. These reports can also signal where shareholder pressure may be heading.

Also be sure to carefully analyze your say on pay vote results. Mutual funds' voting records were due out August 31. Make sure you know where the "no" votes came from--and why.

* Understand shareholder views. According to our research, the most common action to achieve a favorable say on pay outcome was engaging shareholders directly. Companies should consider communicating with their major investors early--when they are more likely to be accessible and open to engaging in a thoughtful dialogue. Ensure that both the shareholders that voted against the say on pay proposal and those who supported it are consulted to understand perceived strengths and weaknesses. This feedback v/ill be useful in assessing potential program changes and framing the CD&A (Compensation Discussion and Analysis) for the 2012 proxy.

Especially if "against" votes were significant, consider conducting a brief survey of shareholders to gauge their opinions. Several companies have taken this route and new tools have been developed that can facilitate the...