Shareholders Give Banks a Thumbs-Up on Pay

6-26-13_Semler.pngBank directors can take heart from the results of say-on-pay votes during the past three years. Since the 2010 Dodd Frank Act gave shareholders of public companies the right to an advisory vote on executive compensation practices, banks have, on average, slightly outperformed all other companies in affirmative votes.

Although say-on-pay voting is ostensibly about pay only, it is one of the few mechanisms shareholders can use to directly send a message about their overall satisfaction with the company. Since the 2008 recession, banks have been subjected to intense scrutiny and an avalanche of negative publicity for their perceived role in precipitating the financial crisis. Nevertheless, if bank shareholders are unhappy, it hasn’t shown up in their say-on-pay votes.

From Semler Brossy’s say-on-pay database, we looked at the 2013 voting results through May 27th for all banks in the Russell 3000 index and compared them to the results for all other companies in the Russell 3000. We found that banks averaged a positive say-on-pay approval vote of 92.9 percent. The average for all other Russell 3000 companies is 91.1 percent. Banks not only outperformed other companies on the average approval rate but also in terms of variance: 83 percent of banks passed with more than 90 percent approval for executive pay compared to 77 percent for companies overall. Interestingly, no banks have as yet failed say-on-pay this year, while 2.2 percent of other companies recorded less than 50 percent shareholder approval, basically a failure.

These results have held remarkably steady since say-on-pay was instituted in 2011. In 2011, banks averaged 92.6 percent approval versus other companies at 90.7 percent. In 2012, banks averaged 91.7 percent approval versus other companies at 89.7 percent. Also, banks have failed say-on-pay at a slightly lower rate than companies in general, with failure rates of 0.5 percent in 2011 and 1.6 percent in 2012, versus general industry numbers of 1.5 percent in 2011 and 2.7 percent in 2012.

What about the results for big banks versus small banks? After all, it was the big banks that bore the brunt of negative publicity about executive pay and government bailouts after 2008, while small and regional banks were largely unscathed. But when we looked at the 2013 results for the 30 largest banks by assets compared to all other banks, we found little difference. The large banks averaged 93.1 percent approval and the other banks averaged 92.5 percent, with similar results holding for 2012 and 2011.

These positive results may stem from a combination of factors. Shareholders are likely evaluating the compensation practices of their banks separately and distinctly from broad public or other concerns. Also, bank boards are likely taking the time to carefully design compensation programs and also clearly explaining this linkage of pay and performance in the proxy materials. In any case, no negative messages here. Move along.