A webinar hosted by Stephen F. O’Byrne of Shareholder Value Advisors, revealed the meaningful and material link between compensation and shareholder value, the missing metric, and what the data show:
Average employee pay can provide great insight on the alignment of employee pay with management pay and shareholder value but the required analysis goes far beyond the pay ratio.
Proxy disclosure can be dramatically improved by the addition of a single graph.
The graph is a scatterplot of relative pay against relative performance showing the regression trendline and reporting the slope (“pay leverage”), the correlation (“pay alignment”) and the intercept (“the pay premium at industry average performance”).
Unfortunately, few companies are willing to provide the graph and institutional investors don’t ask for it.
Say on Pay voting can be used to assess the governance efforts of institutional investors including the giant passive investors (BlackRock, Vanguard and State Street).
Active investors can use their excess return to demonstrate the value of their stock selection and oversight.
Passive investors can’t use returns to demonstrate the value of their oversight, but they (and rating services like Morningstar) can use their proxy voting to demonstrate the value of their oversight.
We’ll show a measure of Say on Pay voting quality that measures whether an investor’s SOP voting is informed by objective measures of pay equity, fair to management and fair to shareholders.