Shareholder votes on executive pay mandated by the sweeping Dodd-Frank financial markets overhaul legislation enacted in 2010 are changing how public companies compensate their top executives.
Even though the votes are advisory and most companies pass the nonbinding tests with flying colors, more companies are listening to shareholder concerns over pay, as well as reaching out to large investors and the influential proxy advisory firms that provide guidance to shareholders on how to vote.
"Compensation committees and boards are definitely listening," said Southern Methodist University business professor Mel Fugate.
The pay referendums have put two perquisites that were on the decline even more out of favor: free use of the corporate jet and gross ups, which are reimbursements for taxes that executives pay on compensation.
Companies reviewed in assembling the Post-Gazette's Fortunate 50 listings only had to disclose the value of free jet use for nine executives in their most recent proxy statements. Mylan's Robert J. Coury received more free use of the corporate jet than any other regional company executive for the fifth straight year. The Cecil generic drugmaker valued the benefit at $473,231. Mylan CEO Heather Bresch ranked second, with free corporate jet use valued at $133,346.
There were even fewer cases where regional companies had to disclose reimbursing executives for tax expenses. Most of those cases involved executives who faced higher income taxes because of an overseas assignment.
"That tends to be a little different than a true perk kind of gross up," said Steve Kline of Towers Watson, a consultant that advises companies on pay issues.
Mr. Kline said jet use and gross ups are "pay irritants" that were on their way out when shareholders won the right to a vote on pay. In the limited number of cases where shareholders have voted a pay package down, the issue was not perks but whether the design of the company's pay plan encouraged pay for performance, he said.
Compensation consultants say the referendums have prompted companies to make a larger percentage of their stock-based awards contingent on the company hitting earnings growth or other performance-based targets.
"Say on pay has certainly made an impact on that as companies seek to demonstrate that their pay is aligned with performance," said Aaron Boyd of Equilar, a Redwood City, Calif., research firm.
So far this year, shareholders at only 1 percent of the companies analyzed by Towers Watson have rejected pay plans, down from 3 percent last year. The consulting firm said pay votes have received an average approval rating of 91 percent so far this year, up from 89 percent in 2012.
Semler Brossy Consulting Group, a Los Angeles firm that also keeps a tab on the votes, sees similar results. It reports that 94 percent of the company pay plans put to a vote have received better than 70 percent approval, up from 91 percent last year.
Institutional Shareholder Services, which advises institutional investors on whether to vote pay plans up or down, has opposed 10 percent of pay plans this year, according to Towers Watson's research. That's down from 13 percent a year ago.
In addition to eliminating some questionable pay practices and encouraging performance-based pay, the referendums have prompted companies to start a dialog with investors, particularly if their pay plan was rejected.
"It's become what you need to do, especially if your case is controversial in one way or another," said Todd Sirras of Semler Brossy.
Mr. Sirras said that a few years ago, companies would talk to shareholders critical of pay practices at about the time of the annual shareholder meeting, usually in April or May. Now more of them are approaching investors five or six months before the meeting to explain their pay practices and address any concerns, he said.
"That's an outcome of say on pay," he said.
Some companies are summarizing those discussions in proxy statements sent to investors in advance of the annual shareholder meeting, where the pay votes occur.
Mr. Fugate acknowledges the progress but questions how much they have changed the final outcome: how much executives are paid.
"Things are far more similar than they are different," he said. "In many instances, executives are back to where they were."
Rules for implementing another change mandated by Dodd-Frank -- requiring companies to disclose the ratio between their CEO's pay and the pay of their average worker -- are still being drafted by the Securities and Exchange Commission. Many companies oppose the rule, saying the calculation would be too costly and time-consuming.
But Mr. Fugate believes measuring pay disparity is important. If companies believe that allocating that much money to top executives is in the best interest of shareholders, "They should have to explain that," he said. Still, the time for doing something about that disparity may have passed, he added.
"If it was going to get attention, it would have happened already in the downturn," Mr. Fugate said.
Len Boselovic: firstname.lastname@example.org or 412-263-1941.