2019 REIT Say-on-Pay Recap: Shareholders Find Their Own Voice
Key 2019 Say-on-Pay Highlights
- REIT Say-on-Pay Results Slide But Still Fare Better Than Most Industries - While shareholder support and Say-on-Pay results stayed effectively flat for the general industry, self-managed REITs saw an increase in negative voting recommendations from Institutional Shareholder Services, or ISS (19 Against recommendations in 2019 vs. 15 in 2018) but a decrease in failed proposals (two failed REITs in 2019 vs. three in 2018). Overall self-managed REITs still have results that are slightly better than the Russell 3000 (average support of 90.73% for REITs vs. 90.48% for the Russell 3000), while externally managed REITs continue to be negatively targeted.
- More Active Shareholder Voting - Institutional investors are becoming less reliant on the voting recommendations of proxy advisors and performing their own due diligence and research on executive pay matters, signaling to companies the need for active engagement with shareholders and meticulous compensation disclosure.
- Increased Use of Supplemental Filings - REITs attempted to appeal more directly to shareholders in response to ISS criticisms by filing supplemental materials as a direct rebuttal, with results generally better than those that did not file such materials. In rare circumstances, these filings may even result in ISS re-evaluating and reversing their voting recommendations.
- Problematic Severance Provisions Continue to Drive Negative Voting Recommendations - Companies that have a “Low” concern under the Pay-for-Performance model almost always receive a positive voting recommendation from ISS (the most influential of the proxy advisory firms). The main exception to this rule is at companies that renew employment contracts without modifying previously grandfathered “problematic” provisions, such as excise tax gross-ups or “excessive” severance provisions.