Financier Worldwide discusses pay transparency and pay equity with Etelvina Martinez, Michael Vogele, Reid Pearson and Peter Casey at Alliance Advisors.

FW: Why has pay transparency become such a central issue in the modern workplace?

Martinez: Pay transparency has moved to the centre of the modern workplace because it sits at the intersection of talent, culture and regulation. Employees now expect clarity on how pay decisions are made, not just what they earn, and they use external benchmarks and social platforms to compare outcomes in real time. At the same time, regulators and investors increasingly view pay equity as a core governance and environmental, social and governance issue – linking fair, explainable compensation to long-term value creation. For boards and leadership teams, opaque pay practices now translate directly into trust deficits, higher attrition and reputational risk. Transparent frameworks help organisations show that pay reflects role, contribution and market data, rather than subjective or biased judgments, which is critical for attracting and retaining diverse, high performing talent.

Pay transparency has moved to the centre of the modern workplace because it sits at the intersection of talent, culture and regulation.

Etelvina Martinez

FW: What new disclosure obligations will most significantly change how organisations manage pay?

Vogele: The most significant shift is the move from aggregate narrative disclosure to granular, data-driven reporting on pay and representation. Jurisdictions are increasingly mandating publication of gender and ethnicity pay gaps, band-level or job-level statistics, and, in some cases, individual-level pay ranges in job postings. These obligations force organisations to link job architecture, performance management and pay decisions in a coherent way that regulators, employees and investors can all interrogate. For global employers, the challenge is harmonising different local rules into a consistent policy framework while still meeting country-specific requirements around metrics, frequency and format. The practical impact is that organisations must treat pay data and governance controls with the same rigour they apply to financial reporting, including clear ownership, robust data quality and board level oversight.

The challenge is harmonising different local rules into a consistent policy framework while still meeting country-specific requirements.

Michael Vogele

FW: What are the biggest litigation and compliance risks emerging from pay transparency?

Pearson: The biggest emerging risks stem from misaligned narratives, inconsistent data and inadequate documentation. If public disclosures, recruitment materials and internal messaging promise pay equity but underlying datasets reveal unexplained gaps, organisations face heightened exposure to discrimination claims and class actions. Incomplete job architecture and manual, discretionary pay decisions create particular vulnerability, as regulators and courts increasingly ask for evidence of systematic, bias resistant processes. Cross-border employers also face compliance risk when they apply a single global pay policy, but fail to respect local transparency and reporting rules. Finally, poor data governance, including inaccurate or fragmented human resources (HR) and payroll systems, can lead to erroneous disclosures, triggering regulatory scrutiny, investor concern and reputational damage that extends beyond compensation into broader assessments of governance quality.

The biggest emerging risks stem from misaligned narratives, inconsistent data and inadequate documentation.

Reid Pearson

FW: How should organisations prepare for increased scrutiny, including audits, employee challenges and data requests?

Casey: Preparation starts with treating pay transparency as a governance programme, not a communications exercise. Organisations should map their end to end pay decision process – from job evaluation and market benchmarking to performance calibration and promotion – and document each stage in a way that can be shared with regulators or challenged by employees. A risk based internal audit of pay practices, including statistical analysis of gaps and outliers, helps identify issues before external stakeholders do. HR, legal and investor relations need a coordinated response plan for employee queries, regulatory reviews and shareholder questions, grounded in consistent data and messaging. Training frontline managers is essential. They will often be the first to face employee challenges and must be able to explain pay frameworks confidently, backed by clear talking points and escalation paths.

Preparation starts with treating pay transparency as a governance programme, not a communications exercise.

Peter Casey

FW: How can organisations build defensible pay frameworks that stand up to regulatory and legal scrutiny?

Martinez: A defensible pay framework combines robust design, reliable data and disciplined execution. Organisations should start with a clear job architecture that groups roles by impact, skills and market value, then anchor pay ranges to credible external benchmarks and an agreed compensation philosophy. From there, they need structured processes for starting pay, promotions and variable compensation, with defined criteria and approval thresholds that limit undue discretion. Regular analytics – for example regression-based pay equity studies or cohort analyses by gender, ethnicity and location – help identify and correct unexplained gaps. Finally, documentation matters. Policies, governance minutes and rationale for exceptions all contribute to a record that regulators, courts and investors can review and understand, demonstrating that decisions were made systematically rather than arbitrarily.

FW: How is greater pay transparency changing the relationship between employers and employees?

Vogele: Greater pay transparency is reshaping the employer-employee relationship from one based on implicit trust to one grounded in explicit, data backed fairness. Employees now expect to understand how their pay compares to peers, what drives progression through ranges and how performance translates into reward. This pushes organisations to articulate their compensation philosophy in plain language and to engage in more sophisticated, two way conversations about value, contribution and development. Transparency can strengthen relationships when it reveals coherent, equitable structures. It can also surface tensions where legacy practices have created inconsistencies. Over time, organisations that embrace openness are likely to see higher engagement and retention, while those that resist may face ongoing scepticism, escalations and challenges to leadership credibility.

FW: What does ‘good’ pay transparency look like in practice in a mature organisation?

Pearson: In a mature organisation, good pay transparency is embedded rather than episodic. Employees have access to clear pay ranges for roles, understand how their position within the range reflects experience and performance, and can see realistic pathways for progression. Managers are equipped with tools and training to discuss compensation confidently, supported by dashboards that show team level pay equity metrics and trends. Externally, the organisation publishes concise, investor-friendly disclosures on pay gaps and governance, linking actions to measurable outcomes over time. Crucially, transparency is integrated with broader inclusion and talent strategies – for example targeted development and succession planning for underrepresented groups, so that pay becomes one visible component of a holistic approach to fairness and opportunity.

Financier Worldwide discusses hostile M&A and shareholder activism with Etelvina Martinez, Michael Vogele, Reid Pearson and George Rubis at Alliance Advisors, and Sean Donahue at Paul Hastings LLP.

FW: How do you see shareholder activists balancing traditional value‑creation demands – such as M&A, capital allocation and governance reforms – with emerging themes like operational efficiency in the current market environment?

Donahue: Shareholder activists have recently been balancing traditional value‑creation levers with operational themes by becoming more targeted and thesis‑driven. With M&A markets still uneven and financing conditions tighter, activists continue to emphasise capital allocation discipline, board accountability and strategic portfolio moves – but they now pair these demands with sharper operational critiques. Campaigns in 2025 showed activists using operational efficiency as evidence of management credibility: benchmarking margins, scrutinising cost structures and tying governance reforms to execution risk. At the same time, evolving regulatory expectations and increasingly polarised shareholder proposals have pushed investors back toward fundamentals. Companies that articulate a coherent strategy linking capital deployment, governance and measurable operational progress tend to blunt activist narratives early, while those that drift invite focused, high‑conviction campaigns.

Universal proxy mechanisms in the 2025 season continued to reshape leverage in proxy contests, but the balance of power has become more nuanced.

— Sean Donahue

FW: How are activists adapting their tactics – such as campaign messaging, coalition building or use of media channels – to increase pressure on target companies?

Martinez: Activists are increasingly more sophisticated and targeted in how they apply pressure to companies. In recent years, messaging has expanded beyond purely financial and stock price performance, to encompass themes including governance practices, executive compensation, sustainability commitments and other themes that resonate with a wider range of stakeholders. This broader framing helps activists build credibility with audiences beyond just investors. Media strategies have also evolved. It has become more common to see these blend traditional financial press with other channels like social media or campaign-specific websites. Coalition building has always been a cornerstone of activism, but is becoming more critical in the current environment where proxy adviser influence may be eroding and institutional voting grows more fragmented.

Activists have been known to borrow shares before the record date to temporarily increase their voting block.

— George Rubis

FW: How have universal proxy mechanisms and evolving voting dynamics shifted the balance of power in proxy contests and settlement negotiations?

Donahue: Universal proxy mechanisms in the 2025 season continued to reshape leverage in proxy contests, but the balance of power has become more nuanced. Activism volumes remain high, with US campaigns up roughly 11 percent year over year and boards settling faster and earlier as universal proxy modelling improves. While activists still benefit from the ability to target individual directors, 2025 dynamics showed that universal proxy has not unleashed a wave of full contests; instead, it has encouraged partial refreshes, withhold campaigns and data-driven negotiations. At the same time, large passive investors – particularly the ‘big three’, BlackRock, Vanguard and State Street Global Advisors – retain significant influence over director elections, reinforcing the premium on director level credibility, transparent governance processes and defensible advance notice bylaws. Well-prepared issuers now counterbalance activist leverage through targeted engagement and clearer articulation of board skills and strategy.

Changes are becoming clear as investors rely more on artificial intelligence to assist with voting decisions.

— Reid Pearson

FW: How has the current movement by a number of major institutional investors to more AI-driven voting policies and methods impacted contested solicitations?

Pierson: Changes are becoming clear as investors rely more on artificial intelligence (AI) to assist with voting decisions. Certainly, the influence of proxy advisory firms Institutional Shareholder Services and Glass Lewis will continue to wane. Investors will focus more on their own internal models to evaluate key drivers in a proxy contest, such as financial performance, governance and board, and activist proposals. Not only will AI-driven voting policies drive specific voting outcomes at the institutional level, but we will see different voting among specific funds at the same institution, particularly at actively managed funds. This will make projecting vote outcomes more difficult during a contested solicitation. Both activists and companies will need to evolve the way they engage with shareholders. Historically, both parties have relied on a similar message, usually conveyed in a lengthy deck as well as filings. With the influence of AI, the message from the activist and company will need to be very tailored to not only the investor but the underlying fund manager. It is critical that companies and activists have a clear understanding of the shareholder base, particularly in a high stakes contested solicitation.

FW: Could you explain how stock loan and shorting impact activism?

Rubis: Shares on loan and shorted stock can have a meaningful impact on shareholder activism, mainly because they affect voting power and who controls the vote at the record date. The borrower of the shares receives the voting rights. As a result, the original owner of the shares – the lender – loses the ability to vote. Activists have been known to borrow shares before the record date to temporarily increase their voting block. The slight difference between shares on loan and stock that is shorted is that the latter has been sold into the market and now the new buyer of the stock holds the voting rights.

Repeated weak director votes may indicate governance concerns or gaps in risk oversight.

— Michael Vogele

FW: What indicators or early warning signs should boards monitor to assess their vulnerability to unsolicited bids or activist driven strategic demands? What preparedness programmes are available so that a board can proactively stay ahead of, or be better prepared for, a possible activist event?

Vogele: Boards should closely monitor shareholder voting outcomes. Particularly when recurring over multiple years, support well below 85 percent for director elections or advisory votes on executive compensation signals meaningful shareholder dissent. Repeated weak director votes may indicate governance concerns or gaps in risk oversight, while persistently low support on compensation proposals often reflects a perceived disconnect between pay and performance and potential misalignment with long-term strategy. An underperforming three- or five-year total shareholder return relative to peers can further heighten these vulnerabilities and attract activist attention. Proactive engagement is critical. Boards should use their proxy solicitor to help them reach out to the stewardship teams of major institutional investors to understand concerns and address them early – whether related to pay design, director qualifications or risk management. Institutional investors typically favour constructive dialogue and demonstrable improvement over adversarial campaigns. Companies can use proxy solicitors to design a year-round shareholder engagement strategy that utilises Form N-PX filings to analyse vote returns. In addition, boards can utilise solicitors and legal teams to conduct an activist preparedness audit, which should include a governance benchmarking analysis to helps spot weaknesses in a company’s governance framework.

Coalition building has always been a cornerstone of activism, but is becoming more critical in the current environment.

— Etelvina Martinez

FW: In your experience, what distinguishes successful defensive strategies from those that ultimately strengthen an activist’s case during a contested situation?

Donahue: Successful defensive strategies over the past few years share a consistent pattern: they confront the activist’s thesis directly with credible, data-driven analysis and demonstrate that the board is acting decisively. In 2025, for example, uncertainty, tariff-related developments and select Securities and Exchange Commission proposals drove some activist investors to reassess engagement practices, increasing scrutiny on whether boards were genuinely responsive. Companies relying on procedural manoeuvres or generic messaging often reinforced activists’ claims. Meanwhile, activism levels remained near long-term averages but grew more chaotic in tone, making disciplined sequencing and clear operational milestones even more important. The defences that failed appeared reactive or insular, while the ones that succeeded articulated a forward path more compelling than the activist’s alternative.

FW: Looking ahead, what structural or market conditions do you expect will most influence the next wave of M&A-related activism, including hostile or contested approaches?

Pierson: The next wave of M&A-related activism – especially hostile or contested approaches – will be driven by stronger equity markets, changing regulations, distressed opportunities and more advanced activist tactics. Activists will lean harder into M&A situations, as they are emboldened by improved dealmaking conditions, a universal proxy card and heightened sponsor appetite. Rising equity markets have historically inspired activists by increasing their assets under management. The universal proxy card has lowered the costs associated with contested situations, making them more viable. Activists are increasingly aligning with private equity sponsors to gain added leverage in their campaigns, and companies facing operational underperformance will continue to be prime targets of activism. In addition, activists are now employing more sophisticated digital strategies, such as multimedia campaigns, causing faster public escalation without the cost or delay associated with private engagement. These factors will collectively contribute to a surge in sponsor-led activity and create conditions in which activists will feel increasingly empowered to push for sales, breakups and contested transactions.

New plan shares have new guidelines, and keeping the old, unawarded shares that may not get granted, just hampers dilution calculations unnecessarily.

Michael Vogele

FW: What are three key actions a company can take during the planning phase to maximise shareholder support for an equity compensation plan proposal?

Freyman: First, understand your shareholder base. You will need to make a map of what the influences are that determine how your shareholders will vote – factors such as dilution, burn rate, proxy advisers and so on. Second, build your plan within those limits. This may be choosing a new share number that matches the maximum dilution allowed by your shareholder’s specific guidelines, or that a proxy adviser will likely support. Lastly, reach out to your shareholders. Establishing a relationship with your top holders before you need their vote will give you a strong platform to talk again during the proxy process.

FW: What are the primary factors institutional investors and proxy advisers consider when evaluating an equity plan proposal?

Cioffi: Dilution, burn rate and plan features are primary factors. While dilution and burn rate are the most important factors, it is important to remember that plans that allow for repricing or contain ‘evergreen’ provisions and other problematic ‘features’ are likely to face significant blowback from institutional investors and proxy advisers.

FW: What are three common missteps companies should avoid during the planning phase of an equity compensation plan proposal?

Vogele: We find one of the most common missteps that typically older equity plan, established more than seven years ago, is where the company proposes to amend the existing plan rather than create a new plan. Frequently, legal provisions and best-market practices change over the years, and having a newly designed plan document is normally easier than finding and fixing the mistakes from the past. In a similar way, should a company be updating its plan documents, one common misstep is not removing evergreen provisions or single trigger conditions for change in controls, something many investors see as red-line issues. Another common misstep that occurs when implementing a new equity plan is not cancelling unawarded shares from the previous authorisation. New plan shares have new guidelines, and keeping the old, unawarded shares that may not get granted, just hampers dilution calculations unnecessarily.

Make sure your proxy statement tells your story as to why you are asking shareholders to approve shares for your equity plan.

Reid Perason

FW: What strategies can a company deploy to address potential investor concerns or mitigate risks associated with an equity plan proposal?

Martinez: In instances where a company anticipates opposition from one or both proxy advisers, it is imperative to reach out to shareholders directly to underscore the importance of their vote in securing approval for the equity plan. These conversations should be informed by a clear understanding of each investor’s policies, whether they prioritise dilution thresholds, plan cost, historical burn rate or a combination of these and other factors. It is equally important to assess how closely each shareholder aligns with proxy adviser recommendations versus relying on their own internal guidelines. Some may follow Institutional Shareholder Services (ISS) or Glass Lewis closely, while others apply proprietary criteria. Because each investor evaluates equity proposals through a distinct lens, outreach should be tailored to address their specific concerns and decision drivers. While technical metrics such as burn rate or dilution are important, they are not the sole factors shareholders consider. Overall, messaging for shareholders should emphasise the strategic role the equity plan plays in attracting, incentivising and retaining key talent, and how equity grants are aligned with the company’s long-term business objectives. The argument that the equity plan is a tool to drive performance can be especially persuasive when the plan benefits a broad employee base, not just the named executive officers. Finally, emphasise how the board actively stewards the plan by highlighting any shareholder-friendly features it may contain, such as minimum vesting requirements or double trigger change-in-control provisions, and takes a disciplined approach to dilution. These elements demonstrate a commitment to responsible governance and alignment with shareholder interests.

Certainly, having ISS support your plan is helpful, but it is not essential to secure shareholder approval of your plan proposal.

Etelvina Martinez

FW: How critical is obtaining Institutional Shareholder Services support for the success of an equity compensation plan proposal?

Martinez: Having the support of ISS is not critical. Certainly, having ISS support your plan is helpful, but it is not essential to secure shareholder approval of your plan proposal. Roughly 99 percent of plan proposals pass despite ISS recommending against approximately 30 percent of proposals. Planning a successful vote outcome begins with an analysis of your shareholder base. Three factors to consider are, firstly, the makeup of your shareholder base, in terms of retail investors and institutional investors. Secondly, for your institutional base, how many are influenced by ISS and Glass Lewis, and how strictly these shareholders follow those firms. And thirdly, which investors follow their own internal guidelines and what are the equity plan guidelines of these investors. Once you understand your shareholder base model, undertake several vote projections with each investor, considering factors like burn rate, voting power dilution and plan duration, among other factors. If you identity any potential pressure points with these factors, consider engaging with your investors before the proxy is filed. Do this analysis before signing up with ISS’s consulting arm.

Establishing a relationship with your top holders before you need their vote will give you a strong platform to talk again during the proxy process.

Stephen Freyman

FW: What role does transparent communication and stakeholder engagement play in securing approval for an equity compensation plan?

Pearson: Make sure your proxy statement tells your story as to why you are asking shareholders to approve shares for your equity plan. For example, your burn rate may be considered high by some investors. Perhaps you have increased headcount to focus on a new business line and provided these new employees with equity grants – make sure the proxy explains this. Many investors look at thousands of proxies every year, so make your rationale for why they should support the plan proposal easy for them to find. Also make sure to explain how your equity plan proposal ties to your overall business strategy. At many investors, it will be a stewardship or governance team that makes the vote decision, and they may not be as familiar with the business strategy as the investment side. This will be important context for them. Shareholder engagement can also be an important step in maximising support for your plan. As you are in the planning phase and you identify some potential pressure points, such as high voting power dilution, for example, you may want to set up some time to engage with your holders before you file the proxy. The feedback can be important in your proxy disclosure. Of course, you will want to follow up with your holders after the proxy is filed.

FW: How can benchmarking against peer practices and market norms strengthen the credibility and competitiveness of an equity plan proposal?

Cioffi: An understanding of peer practices and market norms is crucial for most companies that have a significant institutional shareholder base for equity plan proposals. Dilution and burn rate outside of peer and market norms can be problematic for advisory firm recommendations and individual institutional investors’ guidelines. Many of ISS’s plan features have become widely accepted over the years since the ‘Scorecard’ has been implemented, however all are not widely accepted. The most common equity plan feature is prohibiting dividends on unvested awards, and by far the least common is limiting the discretion to accelerate vesting.

The most common equity plan feature is prohibiting dividends on unvested awards, and by far the least common is limiting the discretion to accelerate vesting.

Donald Cioffi

As the 2025 shareholder meeting season wraps up, companies must turn their attention to a critical next step: engaging shareholders after the meeting concludes.

Michael Vogele, Managing Director at Alliance Advisors, explains why proactive post-meeting engagement is essential.

The annual shareholder meeting marks a major milestone for public companies — but it is not the finish line. Instead, it offers a starting point for deeper, more meaningful shareholder engagement throughout the rest of the year. As expectations from investors continue to rise, here are five reasons why public companies must prioritize post-shareholder meeting engagement:

Conclusion

Alliance Advisors designs and implements Post Meeting Shareholder Engagement programs for hundreds of public companies, all over the world.  Our programs inform C-Suite executives and their Boards as to who their institutional investors are, how they voted, why they voted the way they did, and provides a playbook on how to engage with them.  Our Board-ready final reports serve as a foundation for shaping the following years’ corporate governance and executive compensation framework.

Post-shareholder meeting engagement is not just a best practice — it is a business imperative. Companies that engage consistently, listen carefully, and respond thoughtfully position themselves for stronger investor relationships, improved proxy outcomes, and long-term success.

The annual meeting may close the books on one season, but real leadership shines through in what happens next.

Shareholder meetings are landmark events for North American listed companies, but executives need to engage shareholders throughout the year. Michael Vogele, Managing Director of the global advisory group at Alliance Advisors, explores.

The 2024 shareholder meeting season is in full swing, but companies across the US already need to be conscious about what comes next, Shareholder Engagement season. There are plenty of tactics here, and expertly executing shareholder engagement requires the assistance of an advisor with deep knowledge of the shareholder meeting and institutional investor landscape. Mandated by the US SEC, for instance, N-PX filings detail the proxy voting records of registered funds, giving issuers insight into how investors voted at their shareholder meeting.

To truly understand investors’ motivations, companies should directly engage with them during the “off-season.

Investors signal their expectations for public companies through their proxy voting policies, which are publicly available and updated once a year. These proxy voting guidelines offer a sense of potential issues for shareholder meetings. Sifting through the paperwork can certainly secure valuable insights – a recent study by Deloitte and Tufts University found that 83% of professional investors across the US now boast specific ESG policies – the sheer breadth of shareholder pressure points require a more holistic approach, ultimately one that involves year-long engagement because there are countless issues for which investors apply case-by-case analyses and speaking directly with the investor can shed light on how they may vote on a particularly nuanced matter.

A range of challenges

The scale of the challenges facing US corporate leaders is clear from the numbers and it is imperative that issuers understand key stakeholders’ evolving expectations. Consider for example, the rising importance of cybersecurity. With new SEC rules obliging companies to disclose serious incidents, a full 71% of US investors now see cyber as a major threat.

And if that’s echoed by the reaction of corporate leaders – PwC reports that 88% of American companies are considering sharpening their cyber risk policies – there are plenty of other worries too.

As the Deloitte survey implies, ESG is one, though in practice that spans the gamut from board diversity to practical action on climate change. A second involves corporate pay, while third involves AI: at Apple’s AGM in February, 37.5% of shareholders voted for a motion demanding the company clarify how it uses the technology.

Given these competing priorities, how should executives react? SEC forms and policy documents are a good start. But to truly get to grips with what shareholders want, companies can’t imply wait for contact – but should rather proactively engage investors to understand their concerns.

In-person meetings (most over Zoom or Teams) are obviously important here: the statistics make clear that letter writing won’t get leaders far. Just as crucial is thinking carefully about which stakeholders to approach. While calls with investor portfolio managers are important from a financial perspective, stewardship or responsible investor teams are the groups which ultimately make proxy voting decisions.

In a broader sense, companies should rely on their last shareholder meeting results to decide which issues to focus Shareholder Engagement efforts on over the coming year. As a rule of thumb, any resolution receiving below 80% support from shareholders requires a robust corporate response. Shareholder resolutions creeping over the 20% threshold are even more urgent.

Based on recent experiences, meanwhile, US companies seem destined to have a busy year. As GAM Investments reports, for instance, many resolutions covering environmental disclosure hit that all-important 20% mark over the last two years, with few signs that’ll change through 2024.

Transparency and speed

Once companies have pinpointed the main shareholder worries – and which investor teams to engage – what should they do next? In the first place, we’d recommend speaking to every stakeholder willing to have a conversation, including those rejecting the company line.

If, moreover, it becomes clear that a majority of respondents are worried about a particular policy, executives should move fast. In reality, of course, implementing changes might take years. Nevertheless, corporations should signpost their intentions in advance, and clearly explain timelines.

Whatever the challenge, leaders would be wise to link change with wider business goals. Beyond fulfilling their primary professional function, this is what investors increasingly expect: 63% across the US prefer that ESG goals connect with shareholder value through quantitative data. The same is true in cyber security. With each major incident sparking a 9% drop in value, there’s clearly space for companies to balance ethics and the bottom line.

Not that a universal approach necessarily works either. Once again, dialogue the watchword here, helping executives determine exactly what shareholders are looking for. When it comes to compensation, for instance, every investor has their own preferred style – and major US corporations, from Apple to Visa, may feel shareholder principles do not allow for industry-specific considerations.

One important way to break the deadlock is transparency, ensuring investors can judge companies on their progress. Around environmental concerns, for instance, companies could publish greenhouse gas targets. For cybersecurity, they could pledge to appoint IT experts to the board, especially urgent with those SEC changes, an approach giants like Amazon are increasingly extending to AI.

Openness is doubly important for corporate compensation. Publishing financial or other goal data for short-term incentive schemes is one good example. And though firms may worry that publishing puts them at a competitive disadvantage, transparency means they can prove their metrics are fair, especially when payouts are higher than expected.

It’s a similar story elsewhere: publishing shareholder feedback and issuing follow-up statements are both ways of keeping investors engaged long after the shareholder meeting season ends. Another tactic is leveraging expert advice, helping busy executives keep abreast of stumbling blocks all year round. Given how many investor challenges US executives now face, getting outside help surely makes sense.

Michael Vogele, Managing Director of Alliance Advisors Global Advisory Group, has 22 years of experience providing consultative services on Shareholder Engagement & ESG topics.

As issuers prepare for a new proxy season, establishing a robust investor engagement strategy can help pave the way to success, writes Michael Vogele, managing director, global advisory group, Alliance Advisors.

While bringing about change may take months or even years, the communication of this strategy must be sound.

Now that the dust has settled on the 2023 proxy season, companies are asking themselves what the 2024 season may hold in store for them. Some companies look at N-PX filing data, a Securities and
Exchange Commission (SEC) form that details the proxy voting records of registered funds, to give them insights into investor voting decisions, while investor voting policies are another avenue to aid issuer understanding of voting decisions. While investor policies are publicly available and updated on an annual/bi-annual basis, understanding voting triggers requires a nuanced review.

Starting in September, companies also begin the practice of proactively engaging with their largest shareholders, rather than waiting for investors to contact them with concerns or disclosure requests. The companies taking this initiative are hoping to understand what compensation, governance, environmental and social (E&S) or sustainability risks an investor may perceive and ways to avoid a non-supportive voting decision. Regrettably, not all companies effectively engage with their shareholders. They believe that having calls with the investor portfolio managers is sufficient. Yet, by doing this, they are excluding the ESG, stewardship or responsible investor teams, as they are known in different jurisdictions. It is these entities that end up making the proxy voting decisions and they are the ones that need to be engaged with. Depending on the level of vote support at the annual shareholder meeting, investors and proxy advisors may be expecting a company to make appropriate structural changes. Specifically, any resolution receiving below 80% support from shareholders, be that elections or discharge of the boards, “say on pay” resolutions, auditor ratification, all require a robust corporate response, including clear disclosure on engagement efforts. In addition, should a shareholder resolution receive upwards of 20% support, it would also behoove a company to determine why shareholders supported this resolution by such a wide margin. That being said, many companies unfortunately do not understand what responsiveness looks like for an investor.

As a pertinent example, let us discuss board elections where typical objections are based on shareholder unfriendly governance practices, lack of diversity on the board, or compensation concerns, to name a few reasons. What are companies expected to do with this initial insight? What we would recommend initially is to speak to as many shareholders as are willing to have a conversation, including holders that voted for as well as against the proposal.

Should the pattern emerge from this dialogue that a majority of respondents share these concerns then a company should begin making changes. While bringing about change may take months or even years, the communication of this strategy must be sound. This would entail the publication of robust targets and appropriate timelines for implementation in the appropriate public filing. It is the latter process that one would deem to be responsive.

Similarly, should the company employ a governance practice that investors deem to be shareholder unfriendly, such as maintaining a classified board, then the company should consider sunsetting this practice. As stated above, most investors realize that it may take a company multiple years to resolve this structure, so communicating this effectively is paramount. Addressing compensation concerns Switching to the contentious topic of compensation, every investor has their preferred constructs, and some companies may feel like these principles do not allow for industry-specific considerations. This dilemma highlights the necessity to begin a dialogue with shareholders to determine what they prefer and what non-best practice market norms can be overcome by transparency. An example of this is the publication of financial or non-financial goal data for short-term incentive schemes, specifically the disclosure of threshold, target and max goals. Companies may claim competitive disadvantage by publishing this data, however, should an incentive program exceed target payouts, then an investor may question if the targets were even robust in nature.

This is where concise disclosure is fundamental, listing shareholder feedback and describing consequent changes to compensation structures. Equally, responding to compensation structure concerns requires a comprehensive review and follow-up statement in the necessary fillings. Should there be a historic concern with overpayment for under-performance, then shareholders will expect an appropriate response by implementing risk mitigators, reducing short and/or long-term incentive grant multiples and/or more robust goal setting for long-term incentives. Finally, some companies are still uncertain how to react to shareholder proposals that received support of above 20%. Again, engaging with investors is essential and then responding in an appropriate manner. Never miss the opportunity to state that the company is compiling the necessary information and it will be available at a certain future date.