Directors & boards 2012 proxy survey: elimination of red-flag compensation program elements to smooth the say on pay vote and heightened communication with shareholders are two themes infusing this year's survey.

• Author: Shaw, David
• Position: 2012 PROXY SURVEY

CURRENT AND IMPENDING RULES will continue to dominate this year's proxy high season, but perhaps because share prices are up and the markets are nearing or exceeding 2008 highs, companies are having success with their shareholders in implementing say on pay and say on frequency.

According to our recent proxy expectations survey, of the 59% of respondents who said they had a say on pay vote in 2011, the vast majority (83%) saw approval votes of 80% or greater of shareholders. Say on frequency of those votes was also on the top of the shareholder agenda last year.

Even with the strong passage of most say on pay votes, directors noted a variety of board responses to last year's votes, including: "We engaged compensation consultants, amended the CEO's employment agreement, and adopted more pay for performance compensation" and "We have heightened our communication with shareholders on pay packages."

Nearly 11% of respondents reported that their proposed slate of directors wasn't re-elected in its entirety last year, with a similar number reporting that the entirety of the company's shareholder proposals were also not okayed.

For 2012, say on pay and say on frequency will continue to be a driver of proxy initiatives, according to our respondents, but there is an expectation to see more measures related to political contributions and environmental and social issues. "We're seeing vastly more labor influence," one director noted. "There are a lot of proposals regarding political (and other) contributions, including to nonprofits (the Planned Parenthood effect). We're also seeing a lot more pressure on legislatures to reverse Citizens United [the Supreme Court ruling on political expenditures by corporations]."

The majority of respondents (81%) noted that their compensation plans don't have red-flag elements like excise tax gross-ups, high levels of executive perks, perk gross-ups, or single-trigger change of control provisions. That development, along with the recovery of shareholder value through stock price gains and the halo effect of the Occupy Movement and this year's political battles, may explain the increased expected proxy focus on non-pay issues.

Interestingly, nearly 27% of respondents indicated that they've begun to implement pending Dodd-Frank rules in advance of final rulemaking, with one director noting that "we are committed to best practices on our board, and want to be at the forefront of complying with Dodd-Frank." The majority...