Say on Pay: CEO Compensation and the Long Tail of Shareholder Dissent

Key Insights:

• CEOs' incentive/variable pay comprised an average of 85% of the largest companies’ overall CEO pay in 2023 and has grown by around 8 percentage points over the past 10 years.

• Morningstar’s Executive Insight Data shows that over the past decade, CEO pay at the largest US companies has surged 30%, with the median S&P 500 CEO payout exceeding USD 15 million and the average topping US 17 million in 2023.

• A typical feature of failed say on pay votes is that shareholders’ and CEOs’ fortunes diverged dramatically - CEOs took home handsome paychecks while shareholders saw their value erode.

• Significant say on pay dissent signals misalignment between management incentives and shareholder interests. In response, shareholders should pay attention to the long tail of the say on pay distribution when looking for governance red flags, and for opportunities for meaningful engagement. 

At a time when wage gaps and social equity are under intense scrutiny, CEO compensation is becoming a lightning rod for broader concerns about fairness and sustainability. Analysis of Morningstar’s Executive Insight Data shows that over the past decade, CEO pay at the largest US companies has surged 30%, with the median S&P 500 CEO payout exceeding USD 15 million and the average topping US 17 million in 2023 (Figure 1).  

Pay numbers reported in 2024 show that at least nine top executives, categorized as at the upper end of the highest earners, took home 2023 pay packages surpassing 1,000 times that of the median US worker.¹ The highest paid S&P 500 CEO, Tan Hock of Broadcom, was awarded a package more than 3,000 times that of the median US worker, and more than 500 times that of the median Broadcom worker, at almost USD 162 million.²

Figure 1. 10-Year Trend for Average S&P 500 CEO Pay Versus Say on Pay Votes

_{Source: Morningstar’s Executive Insight Data and Sustainalytics ESG Voting Policy Overlay. For informational purposes only.
Note: Data as of Dec 1, 2024. Reported in proxies for meetings held between July 1 and June 30 of years indicated.}

Despite these dizzying numbers, shareholder approval of senior executive compensation – or say on pay – remains fairly consistent from year to year. Figure 1 above shows the average proxy ballot support for pay at the largest US companies, hovering around 90% over the past 10 years. 

In this article we explore say on pay voting, with the aim of illuminating pay practices that lead to low levels of shareholder support. We also identify opportunities for shareholder engagement based on say on pay voting outcomes.  

The History of Say on Pay and the Challenges of Complex Pay Arrangements

Say on pay was mandated by the post-financial crisis Dodd-Frank securities market reform legislation as part of a suite of measures to improve accountability and transparency in the financial system.³ It has been a staple ballot item on US corporate proxies since 2011, following widespread public and shareholder dissatisfaction with excessive pay that came to light during the 2008 financial crisis. At the time, this new voting right aimed to sharpen shareholders’ focus on C-suite pay practices that encouraged short-termism and risk taking across the financial sector in the leadup to the economic collapse. 

C-suite compensation covered by the say on pay vote is generally composed of a base salary, pension fund appreciation, perks and benefits, and incentive pay. Incentive (or variable) pay comprised an average of 85% of the largest companies’ overall CEO pay in 2023 – a number that has grown by around 8 percentage points over the past 10 years, according to Morningstar’s historical executive compensation data.⁴ It is typically delivered via two types of plans: an annual bonus, calibrated against a combination of financial, strategic and operational metrics, and a long-term incentive plan that is usually calibrated against one or more share-based performance measures like total shareholder return, tracked over three years. Variable payouts may also contain a retention component subject to vesting conditions. Understanding pay outcomes and decoding the say on pay vote result therefore usually focuses on incentive pay features.  

But C-suite pay arrangements are complex, leaving shareholders overly dependent on a board’s recommended vote or on the advice of proxy advisors. Boards themselves may not fully grasp, or give enough attention to, the range of possible outcomes of intricate plans designed by external pay consultants. 

In the 14 years since its inception, say on pay has failed to stem the inexorable rise in CEO and senior executive pay at US companies. A growing shareholder concern is that unchecked C-suite pay at US companies is ratcheting up CEO pay in other markets where companies seek to offer packages benchmarked against US peers. 

Insights That the Long Tail of Say on Pay Can Tell Us 

In any one year, the majority of say on pay vote results cluster well above the average, in a characteristic negatively skewed distribution. Looking at Figure 2 below, across the 2024 proxy calendar, the S&P 500 median say on pay approval rate was 93%, with only 7% of pay approvals falling below 75%, and just six failing to garner majority support.

Figure 2. Distribution of 2024 Say on Pay Vote Outcomes Across S&P 500 Companies

_{Source: Morningstar’s Executive Insight Data. For informational purposes only.
Note: Data as of Dec. 1, 2024, for shareholder meetings held between July 1, 2023 and June 30, 2024.}

At the upper end of the distribution, the vote outcomes may not offer a sufficiently informative signal. But the long tail deserves a closer look. Insights into what moves the vote, and how companies respond to poor outcomes, can inform sustainability-minded proxy voting and strengthen say on pay as a shareholder engagement lever. 

Why CEO Pay Is a Sustainability Concern

Outsized CEO pay can erode a company’s standing with key stakeholder groups. High CEO to worker pay disparity has been repeatedly highlighted in strike actions over the past two years.⁵ High CEO pay may even erode consumer trust, especially for firms experiencing a brand crisis, according to recent research.⁶

Findings from recent studies raise doubts surrounding the link between variable incentive pay and CEO motivation, suggesting that CEOs’ motivations may be based on more comparative considerations – such as the pay of other CEOs, their previous pay, and their beliefs about their contribution to the firm. This challenges the usual narrative justifying high pay packages to attract and retain top talent.⁷

As shareholders revisit governance basics underpinning sustainable business practices, the say on pay voting right should be prioritized as a valuable tool in the stewardship toolbox. This vote offers a reference point for considerations of fairness and alignment with long-term sustainability targets. It is a point of leverage in engagements with boards over issues of good governance.

Yet complex pay arrangements are difficult to evaluate, and this likely results in levels of say on pay support that understate general shareholder concerns about the governance, mechanics, and outcomes of C-suite pay arrangements. 

When Shareholders Disapprove: Failed Say on Pay Votes and Their Impacts

At the lowest end of the say on pay distribution are a handful of votes that fail to garner 50% shareholder support. We counted six votes across the S&P 500 in the 2024 proxy calendar spanning July 2023 to June 2024 (Table 1).  Each failure represented a significant decline in support from respective 2023 support levels. A typical feature of these outcomes is that shareholders’ and CEOs’ fortunes diverged dramatically: CEOs took home handsome paychecks while shareholders saw their value erode. 

In the case of Norfolk Southern, the company suffered a 150-car train derailment in February 2023, causing a massive chemical spill. Cleanup and other costs related to the resulting environmental destruction are estimated to run over USD 2.2 billion, and the company continues to face a barrage of litigation, including claims that it prioritized cost cutting over safety.⁸ While shareholders’ value declined in 2023, the CEO’s pay jumped 37%, reaching USD 13.4 million. The company became the target of a proxy fight in February 2024, in which an activist investor took aim at the board’s governance and gained three board seats.⁹

3M’s shareholders have lost significant value since 2021, with the company facing ongoing litigation over “forever chemicals” in drinking water.¹⁰ While 3M intends to exit polyfluoroalkyl substance (PFAS) manufacturing by the end of 2025, it reached a USD 10 billion settlement in 2023, with further litigation pending. From 2022 to 2023, the CEO’s take-home pay jumped by USD 2.5 million, to more than USD 15 million, and the average for other senior C-suite executives more than doubled.¹¹

Table 1. Failed S&P 500 Say on Pay Votes in the 2024 Proxy Calendar

_{Source: Morningstar’s Executive Insight Data. For informational purposes only.
Note: Data as of 1 Dec. 2024, for shareholder meetings held between July 1, 2023 and June 30, 2024.}

These observations are also consistent with recent research which found that, for 77 Russell 3000 companies that failed their say on pay votes in 2022, average CEO pay was significantly higher than the average for the Russell 3000. As well, CEO pay in the year that a company failed the vote was higher than the same CEO’s pay in the previous year, and a significant proportion of the failures showed poor share price performance.¹²

Say on Pay Votes That Nearly Fail and Why Boards Should Pay Attention

We now shift our attention to a section of the say on pay support distribution just below the 10th percentile (Figure 2 above). Approval rates of just under 75% flag pay practices that decouple pay and performance. These include CEO signing arrangements, including generous one-time stock awards; setting targets for 100% payout of performance awards at 50th percentile performance relative to a comparator group; discretionary mid-cycle adjustments to share awards or performance targets; and change of control arrangements that trigger accelerated vesting of performance shares. Some examples serve to illustrate this decoupling.

At Dollar General, low shareholder support followed an overly generous rehire package granted to the incoming CEO, who had previously served as CEO from 2015 to 2022. The package contained a one-time award of shares and accelerated vesting provisions applying to unvested equity awards that could be triggered if he was replaced or resigned for various reasons – potentially eroding the incentive to remain and perform in the role until awards vest. Overall, the CEO’s new pay arrangements delivered a 2023 payout valued at over 500 times the company’s median worker pay, which various labor groups campaigned against in the lead up to the say on pay vote.¹³

At Prudential Financial, the board ratified mid-cycle changes to outstanding performance share awards, lowering the minimum threshold performance level for partial payouts under one component of the plan. This partially insulated the CEO and senior C-suite executives from the impacts of market-wide interest rate increases in 2022 and 2023. The committee justified this in-flight adjustment as a retention measure.¹⁴ However, boards rarely recalibrate performance thresholds when market conditions result in windfall gains to top executives. 

At Oracle, say on pay support has averaged 56% over the past ten years. Even counting votes controlled by founder and CTO Larry Ellison, shareholders’ concerns are likely linked to Ellison’s share pledging arrangements, the discretionary nature of senior executive bonus awards, the lack of long-term senior executive performance goals, and the absence of ESG performance targets. Importantly, a longstanding class action lawsuit alleging gender pay discrimination at the company was settled early in 2024, drawing attention to pay practices at the company.¹⁵

Lessons on the Long Tail of Say on Pay Support

Significant say on pay dissent signals misalignment between management incentives and shareholder interests. It may therefore be interpreted as a broader statement on a board’s oversight and effectiveness. In response, shareholders should pay attention to the long tail of the say on pay distribution when looking for governance red flags, and for opportunities for meaningful engagement. 

Not surprisingly, companies that fail the say on pay vote routinely engage in outreach to shareholders to understand the reasons.¹⁶ Even support levels that fall short of 80% can grab a board’s attention and encourage more constructive engagement with shareholders to avoid more aggressive shareholder actions.¹⁷

Case studies focused on the long tail of the say on pay support distribution offer useful lessons, both for boards seeking to align their executive compensation practices with shareholders’ expectations, and for shareholders looking to strengthen engagements with companies ahead of the next proxy season.

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.

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References

1. United States Social Security Administration. 2023. "Measures of Central Tendency for Wage Data." February 1, 2025. https://www.ssa.gov/OACT/COLA/central.html and McNair, K. 2024. “The income everyday Americans earn in every U.S. state—see how your salary measures up.” CNBC. April 14, 2024. https://www.cnbc.com/2024/04/14/median-annual-income-in-every-us-state.html.
2. United States Security and Exchange Commission. 2024. Broadcom 2024 Proxy Statement. April 22, 2024. https://www.sec.gov/ix?doc=/Archives/edgar/data/1730168/000114036124009541/ny20015852x1_def14a.htm.
3. United States Congress. 2010. H.R.4173 - Dodd-Frank Wall Street Reform and Consumer Protection Act. July 21, 2010. https://www.congress.gov/bill/111th-congress/house-bill/4173/text.
4. According to calculations based on Morningstar’s Executive Compensation data, finding incentive pay to comprise around 77% of total S&P 500 CEO pay in 2014.
5. Morrow, A. 2023. “A core frustration unites striking workers: Exorbitant CEO pay.” CNN.  September 19, 2023.  https://www.cnn.com/2023/09/18/business/ceo-pay-unions-strike/index.html.
6. Besharat, A.; Whitler, K. and Kashmiri, S. 2024. “When CEO Pay Becomes a Brand Problem,” Journal of Business Ethics. March 30, 2023. https://doi.org/10.1007/s10551-023-05394-0.
7. Edmans, A.; Gosling, T. and Jenter, D. 2023. “CEO compensation: Evidence from the field.” Journal of Financial Economics, Volume 150, Issue 3. December 2023. https://www.sciencedirect.com/science/article/pii/S0304405X23001587.
8. Funk, J. 2025. “Norfolk Southern CEO optimistic about 2025 after solid fourth quarter.” Associated Press. January 29, 2025. https://www.theglobeandmail.com/investing/markets/commodities/VJM24/pressreleases/30660444/norfolk-southern-ceo-optimistic-about-2025-after-solid-fourth-quarter/.
9. United States Security and Exchange Commission. 2024. Norfolk Southern 2024 Proxy Statement. March 20, 2024. https://www.sec.gov/ix?doc=/Archives/edgar/data/702165/000119312524072121/d774854ddefc14a.htm.
10. Mair, S. and B. Anderson. 2024. “Controversies Over ‘Forever Chemicals’: Navigating the US Landscape of PFAS Regulations.” Morningstar Sustainalytics. September 25, 2024. https://www.sustainalytics.com/esg-research/resource/investors-esg-blog/controversies-over--forever-chemicals---navigating-the-us-landscape-of-pfas-regulations.
11. United States Security and Exchange Commission. 2024. 3M 2024 Proxy Statement. May 14, 2024. https://www.sec.gov/ix?doc=/Archives/edgar/data/66740/000006674024000037/mmm-20240326.htm.
12. Batish, A., Larker, D.F., Song, L., et al. 2024. “Failed Say on Pay: How to Companies Course Correct Acter a ‘No’ Vote?.” Rock Center for Corporate Governance at Stanford University Working Paper No. CL108, Stanford University Graduate School of Business Research Paper No. 4982752. October 7, 2024. https://ssrn.com/abstract=4982752. 
13. United States Security and Exchange Commission. 2024. Dollar General 2024 Proxy Statement. May 29, 2024. https://www.sec.gov/ix?doc=/Archives/edgar/data/29534/000110465924044304/tm2332854d3_def14a.htm.
14. United States Security and Exchange Commission. 2024. Prudential Financial 2024 Proxy Statement.  May 14, 2024. https://www.sec.gov/ix?doc=/Archives/edgar/data/1137774/000110465924040492/tm2328464-d3_def14a.htm.
15. United States Security and Exchange Commission. 2024. Oracle 2024 Proxy Statement. September 25, 2024. https://www.sec.gov/ix?doc=/Archives/edgar/data/1341439/000119312524226139/d860928ddef14a.htm.
16. See Batish et al., find that, for 68 of 77 failed say on pay votes, boards engaged in shareholder outreach. 
17. Greene, E. and R. Kumar. 2020. “Examining Engagement and Disclosure After Failed or Red Zone Say-on-Pay Results.” Georgeson’s. January 22, 2020. https://www.georgeson.com/us/engagement-and-disclosure-after-failed-or-red-zone-say-on-pay-results.