Tuesday, February 1, 2011

First Say on Pay Loser

You just knew there had to be a first one, the first company whose Dodd-Frank say-on-pay vote failed. Here is where you can find the 8-K for Jacobs Engineering Group, Inc, filed on January 27: http://www.sec.gov/Archives/edgar/data/52988/000119312511017395/d8k.htm

By a vote of 54% to 45% with a little more than 1% abstaining, the vote lost. It's not as if there was a complete upheaval against the company (you'll notice that other votes passed with almost no opposition), but the executive compensation got a 'NO' vote. We don't know why, the shareholders don't get to vote on individual components of executive compensation. It's just an up or down vote on the total package.

What lessons do we learn from this failure? In my opinion, the biggest one is that companies need to develop a strategy for the say-on-pay vote. What communications are necessary to increase the likelihood that shareholders will not find the executive compensation proposal unreasonable? Did Jacobs Engineering explain their proposal well? I don't know. Is there one thing in the proposal that was viewed as particularly egregious by shareholders? We have no way of knowing.

But, the simple fact is that the Compensation Committee of their Board should have had a good idea of which parts of their proposed package could be viewed negatively, and guarded against this sort of vote. It looks like they didn't do that, and for that, as the first big loser here under Dodd-Frank, they shall live in ignominy.

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