Sustainalytics Insight: Say on Pay & CEO Compensation
Morningstar Sustainalytics latest corporate governance research shows the largest US companies’ CEO pay surging 30% over the past 10 years – unchecked by voting rights afforded shareholders in post-financial crisis market reforms.
While average S&P 500 CEO pay topped USD 17 million in 2023, average support for the compensation arrangements that delivered these numbers stood firm at around 90% - more or less where it’s been for the past 10 years.
10-Year Trend for Average S&P 500 CEO Pay Versus Say on Pay Votes
Shareholder revolts against pay arrangements are rare, but closer inspection of such cases reveal governance red flags that shareholders should be alert to in their engagements with companies.
In a recent article, Morningstar Sustainalytics Stewardship Team members Jackie Cook and Oge O’Haeri analyze say on pay voting results to identify some triggers for shareholder voting dissent.
Not surprisingly, a typical feature of low say on pay votes is that shareholders’ and CEOs’ fortunes diverged dramatically in the most recent performance period - CEOs took home handsome paychecks while shareholders saw their value erode.
Poor performance is often linked to poor management of environmental, social or governance risks. Outsized CEO pay can undermine a company’s standing with key stakeholder groups – from employees to customers. This analysis aims to position executive compensation as an important sustainability concern and offer insights for shareholders looking to strengthen engagements with companies.
Jackie Cook – Director, Stewardship, Morningstar Sustainalytics
“If shareholders are to better leverage their voting rights to rein in top executive pay and steer corporate decision-making towards long-term sustainable goals, they will need a deeper understanding of the governance, mechanics and likely outcomes of complex pay practices. Our research agenda aims to contribute to this goal.”
To speak in more detail with the report's authors, reach out to Tim Benedict at [email protected] or (203) 339-1912.
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