We've noted the proxy season this year will be notable forsay-on-pay votes at many companies. Recall that Section 951 of Dodd-Frank requires say-on-pay votes at least every three years. According to Dodd-Franks, companies must have their first say-on-pay vote this year. Companies must also hold a vote on how often to hold say-on-pay votes--every year, every other year, or every third year. Basically, we're in for a lot of activity. And companies are gearing up. 

Towers Watson offers some survey information that adds a lot of color to this activity. 

• Nearly half (48 percent ) of the 135 surveyed companies are making adjustments to their pay-setting process. Among those making changes for this season, 65 percent are devoting more attention to explanations in the Compensation Discussion & Analysis (CD&A), 41 percent are performing additional analyses on the link between their executives' pay and company performance, and 30 percent have changed or are considering changing to programs such as severance, change-in-control benefits and perks, like the use of corporate jets. We've noted more companies are doing away with away with gross-ups, reimbursements for various taxes paid and golden parachutes.
• Nearly half (49 percent ) say they do not have a benchmark in mind by which they can judge the outcome of say-on-pay votes. Only 8 percent have a process in place for analyzing the results of the vote and developing appropriate action plans in response to potential shareholder concerns. Of these companies, most believe that a favorable shareholder vote of at least 80 percent would be considered successful, which seems like a high bar. In any case, companies need to give this some consideration. Having the vote is only the first step. Reporting and analyzing the results must follow.
• Just over half (51 percent) expect to hold annual say-on-pay votes, while 39 prefer a triennial vote, and 10 percent favor a biennial votes. 

The most heated activity may come at large banks. It's certainly true that pay has been a huge issue for several years--since the financial crisis set in. And it's true that many banks, including some of the big-name premier Wall Street banks, have made modifications to their pay practices, embracing clawbacks, more payment in stock, longer payout periods and the like. But some activist shareholders are not satisfied. According to TheStreet.com, some will press for practices that "allow for the payment of a portion of top executives' annual awards to be deferred and dependent on sustained performance, sometimes for as long as five years." This has been on the table before, and has slowly garnered more shareholder support.  

UBS, for example, has adopted an arrangement last year "that calls for one-third of a top manager's annual bonus to be paid out immediately with the rest deposited into an account that can be drawn upon over three years, if the executive meets or exceeds certain performance benchmarks. If the executive's performance lags, they stand to lose some--or even all--of the funds." We may see more calls for this sort of set-up. - Jim