Recommendations for triennial say-on-pay votes continue to be the trend among companies that have filed their proxies so far. The big question is whether that trend will hold with some smaller companies out of the picture and companies starting to report vote outcomes.

Among 178 total proxies filed as of Jan. 26, 56 percent of companies recommend SOP votes every three years. Another 30 percent recommend annual votes, while 7 percent recommend biennial votes and the same number make no recommendation. That's according to a tally by the law firm Latham & Watkins. Among 75 large accelerated filers, 53 percent favor triennial votes, while 32 percent want annual votes. Seven percent of LAFs have recommended biennial votes and 8 percent made no recommendation. The same splits among the 53 smaller reporting companies that have filed are 65 percent, 23 percent, 6 percent and 6 percent, respectively.

Triennial votes have been the steady favorite among companies that have filed. “The large number of LAFs favoring that option should hold that number north of 50 percent,” says James Barrall, a partner at Latham & Watkins.

Still, some polls have shown a majority of companies planning to recommend annual SOP votes, and proxy advisory firm ISS is also pushing for annual votes, which is expected to influence some issuers' recommendations. Another factor that could help tilt recommendations more toward annual votes is the fact that smaller reporting companies now aren't required to hold SOP and frequency votes until 2013 under the final rule by the SEC. That eliminates some companies that would likely have recommended triennial votes, says Andrew Liazos, a partner with McDermott Will & Emery.

While companies are certainly watching the recommendations of early filers, both Barrall and Liazos say actual vote outcomes will have more influence on what later companies actions than rules. For instance, at Monsanto, which held its annual meeting on Jan. 25, shareholders voted overwhelmingly in favor of an annual SOP vote, despite the fact that management had recommended a triennial vote. The company announced in an 8-K filed the same day that it would adopt an annual vote.

Dozens more companies will hold their annual meetings in the next couple of weeks. “Those vote results will be hard for boards of companies with meetings in late February or alter to ignore,” says Liazos.

“Every company going though this exercise should have a contingency plan for what they will do if shareholders don't want the SOP frequency that the management recommended, and when they will do it,” says Barrall. Companies should also develop an action plan in the event that their say-on-pay vote doesn't garner the level of shareholder support they want.

Barrall also recommends that companies run test to see whether they have a pay-for-performance disconnect by ISS standards. “That will clearly get you a no recommendation on your SOP vote,” he says. “Companies in that situation should make sure they do a good job explaining their pay-for-performance in their Compensation Discussion & Analysis disclosure.”

While companies aren't bound by the advisory votes, they may be inclined to adhere to it, thanks to a change in the final SEC rule. Under the rule, shareholder proposals related to SOP and frequency can only be excluded during the next proxy season if one of the frequency options gets a majority (not plurality, as proposed) of the votes cast and the company adopts that frequency.

Even if there's no clear majority, “If a substantial plurality of shareholders want particular frequency, most companies will go with that, so they don't risk negative votes for their directors,” says Barrall.

At the end of day, Liazos says the bulk of companies' efforts should be spent on “putting their best foot forward on pay-for-performance and making sure that information is accessible to shareholders and easy to understand.” 

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