High Shareholder Opposition to Pay in 2022: Major Reasons and Examples

The 2022 proxy year – that goes from July 2021 through June 2022  -- more shareholder opposed more CEO pay packages than they ever had before. There were around 20 failed compensation votes at S&P 500 companies. An upward trend in opposition continued. In 2021, a number of votes against pay were for a very particular reason: shareholders were infuriated when executives were insulated from the effects COVID had on their pay packages. Some commentators speculated that the high opposition would decline in 2022. It did not.

In this blog I take a look at several of the companies with highest opposition and a few of the common themes. Future blogs are planned on companies that had low votes in both 2021 and 2022, so those companies are not discussed here.

The highest level of opposition this year was at Viatris where 84% of shareholders voted against the proposal. A quick look at the proxy doesn’t make it obvious Viatris had the worst level of support. The CEO’s compensation was $5.4 million, well below the average S&P 500 CEO. The executive chair’s compensation was $29.0 million, however. When I (with the help of HIP Investor, looked at Total Shareholder Return (TSR) for 3 and 5 year periods for the quarter ending March 30 (the height of spring proxy voting season) the reasons were obvious. Out of all the companies in the S&P 500, Viatris had the lowest TSR.

The next three worst TSR performers over this time period – Carnival, General Electric, Norwegian - also received over 30 percent opposition. Other companies with poor performance in either the one, three or five year TSR included that also had high opposition to pay included: Biogen, DXC, Fidelity National Information Services, Intel, Las Vegas Sands, Walgreens Boots Alliance and Wynn. This suggests that shareholders may be more inclined to scrutinize pay when performance is down, which might have strong implications for next year. Shareholders increase scrutiny of pay for performance when performance is bad.

At CenterPoint Energy, 77.8% of shareholders rejected the pay package of CEO David Lessar. A major reason: the board has signed a Retention Incentive Agreement that provided a total of 1 million shares to be granted through multiple annual awards beginning July 20, 2021. The portion of the grant issued in July 2021 will vest in December 2022, an extraordinarily short time-frame for such a grant.  Shareholders objected heavily to the suggestion that six months could be considered long term.

Extraordinary grants have often inspired opposition, and those that were both time-based and short-term in particular drew the ire of shareholders. Long-term incentives typically cover three years, which many shareholder point out isn’t terribly long either. Companies that tried to shorten the norm were chided by shareholders. Short-term vesting was also listed by shareholders as one reason for opposition to pay at CME, Bookings, Electronic Arts and ServiceNow.

Yet even when companies that fell within the norms on timing and had performance vesting features  received opposition votes when the magnitude of the awards created objections. Most notably at J.P. Morgan, Jamie Dimon was granted a $52,620,000 special award which brought his total compensation to $84,428,145. The award contained some features welcomed by shareholders: requiring the CEO to remain for five years before the awards vest and another five years until he may sell any vested shares. This would be considered a positive pay practice with a smaller award. Yet those features were not palatable enough to make the eye-popping total acceptable.

In fact, there was a largely consistent trend of high opposition to the largest pay packages. In addition to J.P. Morgan, companies with CEOs with the highest disclosed compensation and high opposition were Amazon, Apple, Intel, Lennar, Netflix and ServiceNow.  At ServiceNow, where the board probably anticipated resistance to a total compensation package of $165,802,037 the company preemptively conferred with shareholders and the lengthy proxy statement includes a table that shows both “shareholder feedback” and “Actions taken/Considerations on Design and Disclosure of PSO Awards.” The company goes through concerns one by one, and yet, 64.7% of shareholders opposed the pay. Despite the steps taken by the board, shareholders noted that “the magnitude of the grants is excessive.”

The magnitude is excessive truly may be the bottom line for much CEO pay voted in 2022, and may explain why for the most part shareholders are no longer routinely approving CEO pay packages.