High executive compensation may not be the only factor tied to low say-on-pay support. Poor performance appears to be a significant factor, as well, according to a recent analysis from global professional services firm Towers Watson.

A review of pay data from 728 companies' publicly available proxy filings from 2008 through 2010, and from shareholder voting results in 2011, revealed that the likelihood of receiving lower levels of shareholder support triples for companies with poor performance compared to those that are top performers.

“While say-on-pay votes primarily reflect absolute levels of pay for companies with high pay levels, they can become say-on-performance votes when companies do poorly in generating shareholder returns,” says Todd Lippincott, leader of Towers Watson's executive compensation consulting business for the Americas. 

The study also found—perhaps, not surprisingly—that companies that give their chief executives high pay opportunities are more likely to receive lower levels of shareholder support for their say-on-pay votes than those with smaller pay opportunities. Specifically, 32 percent of companies with high CEO pay opportunities received low say-on-pay shareholder support (below 70 percent) during the 2011 proxy season, compared to only 19 percent of companies with CEO pay opportunity at or near the median.

Similarly, companies that performed poorly—in the bottom one-third in total shareholder return (TSR)—were more than three times as likely to receive less than 70 percent shareholder support for say on pay, regardless of their pay levels, than were companies with top levels of TSR.

“The strong connection among say-on-pay outcomes, executive pay opportunities and shareholder returns indicates that other efforts like eliminating certain pay practices, such as change-in-control tax gross-ups, may have a limited impact on say-on-pay voting results,” adds Lippincott.

Based on Towers Watson's research, companies that target high pay opportunities appear to run a much greater risk of unacceptable voting outcomes than companies that target median pay levels. According to the analysis, companies with high CEO pay opportunities in 2008 and 2009 received similar levels of shareholder support, regardless of whether they changed pay levels for 2010.

Seventy-eight percent of companies that lowered pay for 2010 received acceptable shareholder support levels (more than 70 percent), compared to 74 percent of those that kept pay at high levels.  Companies with median pay levels for 2008 and 2009 that increased their CEO pay opportunities to high levels during 2010, however, saw reduced shareholder support for their say-on-pay votes, with just less than two-thirds of those having done so receiving acceptable shareholder support.

The research confirms that “shareholder votes are strongly influenced both by the sheer size of the pay opportunity and the sensitivity of pay to performance, which many investors equate with shareholder returns,” says Lippincott.

How say-on-pay voting plays out in the 2012 proxy season will be “interesting to see,” says Lippincott, “given that many companies had strong operating results last year, while their share prices and shareholder returns were flat.”