When should companies speak up about their pay practices?

Investors and corporate issuers continue to bicker over say-on-pay issues. A recent survey compiled by proxy advisory firm ISS shows that the two sides even failed to reach an agreement over when to issue an open statement on pay practices' improvement.

In a recent survey on say-on-pay votes, ISS asked the two sides at what level of opposition to a say-on-pay proposal—more than 10, 20, 30, 40, 50 percent—should companies consider issuing an open statement to shareholders explaining their pay policies. A significant number of respondents—36 percent of investors—said that companies with a "more than 20 percent" no-vote should issue statements, while 48 percent of issuers said a statement should only be issued for those who received a "more than 50 percent" against vote.

The middle ground result obtained by the ISS said companies that received between 30 percent and 40 percent against votes should tell shareholders more about their pay practices' improvements. The average represented the opinion of investors (72 percent) and issuers (52 percent).

Not surprisingly, another finding from the report indicates that executive compensation will continue to take center stage in next year's annual meetings. Similar to last year's findings, the majority of both investors (61 percent) and issuers (60 percent) continue to view compensation as one of the top three governance topics. However, citing a previous study conducted by BNY Mellon Shareowner Services, they concur that priority on pay does not necessary translate into a widespread wrestle during the proxy season.

Other corporate governance issues included in the findings are:

Both investors and issuers consider pay levels of executives compared to peers and performance as relevant to decide alignment in pay for performance

57 percent of investors and 46 percent of issuers agree that discretionary bonuses can be problematic if mis-aligned with performance

There's less interest from investors to take into account positive factors to mitigate the cost of an equity plan

U.S. investors continue to clamor for board independence

Certain restrictions on shareholder rights to call for meetings and acts by written consent may be acceptable for shareholders

Investors' growing emphasis on corporate political spending disclosure

Shareholders want the right to vote on stock-based transactions

This is the eighth survey conducted by ISS in its attempt to seek feedback on corporate governance issues at the top of respondents' priority lists for the upcoming proxy season. The online survey was implemented between July 6 and Aug. 26. More than 335 total responses were received, with a total of 138 institutions responding to the survey.

Approximately 63 percent of investor respondents were located in the United States, with the remainder divided between the U.K., Europe, Canada, and Asia-Pacific. 197 corporate issuers responded, with 81 percent of them located in the United States and the remainder divided between the U.K., Europe, and Canada. 

Other findings included in the 33-page report show:

Global investor respondents are focused more on board independence

Second biggest concern among issuers in North America is the risk oversight issue, while in Europe risk oversight is cited along with board competence

Engagement between issuers and investors remains strong

Director's recent experience is the main factor in evaluating board nominees

Environmental, social, and governance issues are significant for a second straight year