US investors are increasingly scrutinizing executive compensation, with record-high levels of CEO pay sparking debate and activism.
Investor backing for “say on pay” proposals soared to 91.5% among S&P 500 and Russell 3000 companies during the 2024 proxy season, as reported in Diligent’s Market Intelligence: Investor Stewardship 2024 report. This surge in support coincides with record levels of CEO compensation, with median granted pay for S&P 500 CEOs reaching $15.9 million in 2023—an 8.9% increase from the previous year. For Russell 3000 CEOs, the median pay rose to $6.6 million, an 8.8% increase, while the ASX 300 CEOs saw a 6.6% increase to $3.07 million.
Josh Black, editor-in-chief of Diligent Market Intelligence, commented on the findings: “The record levels of support we have observed reflect the work that has gone into disclosure and investor engagement.” He noted that stock markets in the U.S. showed strong gains in 2023, contrasting with the negative returns in 2022.
Support for “say on pay” proposals was also strong in the U.K., with advisory votes securing a record 94.7% backing in the first nine months of 2024. CEO compensation in the region is also rising, as the U.K. seeks to close the pay gap with other major markets. At the FTSE 100, CEO median granted pay increased by nearly 6% to £5 million, while realized pay climbed by 4%, reaching a median of £3.9 million.
Key Takeaways:
- Engagement and Transparency are Key: To secure investor backing for pay plans, boards must ensure active engagement with investors and provide clear, transparent disclosure. This will foster investor confidence, especially as pay plans are revised to address inflation, reward performance, and retain talent. Investors are also placing more emphasis on sustainable business practices and long-term goals when engaging with remuneration committees.
- Institutional Investors and Governance Focus: Institutional investors are increasingly targeting board committees, especially nominating and governance committees, with calls for stronger governance. At S&P 500 companies, support for nominating and governance committee chairs was lowest, averaging 92%, while support at FTSE 100 companies was slightly higher at 95.6%. Investors are pushing for greater diversity, board independence, and responsiveness to shareholder votes. In contrast, audit and compensation committee chairs faced less opposition due to separate ballot items at annual meetings.
- Environmental and Social Proposals: The rise in environmental and social (E&S) shareholder proposals in the U.S. is met with declining investor support. In response, an increasing number of companies are turning to the SEC’s no-action process to fend off these proposals. A record 183 companies sought no-action relief in the 2024 proxy season, up from 116 in 2023. The SEC granted 51% of these requests, a rise from 47% last season and 29% in 2022. While support for E&S proposals has waned, governance proposals are seeing unprecedented investor backing, with 77% support in the Russell 3000 and 65% in the S&P 500.
Investor backing for executive pay proposals continues to grow, supported by greater transparency and engagement between companies and their investors. As CEO pay reaches new highs, the trends indicate an increasing focus on governance, sustainability, and responsiveness to shareholder demands. However, the landscape remains complex, with environmental and social issues rising in importance alongside strong support for governance-related proposals.
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