So far in 2021, there have been at least seven S&P 500 companies where more than 30 percent of shareholders voted against pay. Two of these companies, Starbucks and AmerisourceBergen, had failed votes and were covered in blog entries. In the context of companies who routinely receive shareholder support for pay at levels above 95 percent, this level of opposition is unusual. Don Delves, of Willis Towers Watson told the Wall Street Journal that anything under 80 percent support is considered “worrisome” and under 70 percent considered “almost like a failure” by boards.

By this time last year, there were only three S&P 500 companies who had seen support of less than 70 percent. On April 15, Semler Bossy issued a review of say on pay votes, and drew similar conclusions for the Russell 3000: “The current failure rate (4.8%) is nearly 4x higher than the failure rate at this time last year (1.3%).” Furthermore, the review found that the “average vote results of 88.9% for the Russell 3000 and 84.4% for the S&P 500 thus far in 2021 is well below the average vote results at this time last year.”

One reason for the increased opposition may be the actions companies have taken to ensure that executives received bonuses even when performance goals were unmet. The first example came in January at Walgreens Boots Alliance, when 52.45 percent of shareholders voted against the pay package after the company made changes to both its short-term and long-term incentive programs to yield payments that would not have been earned under the pre-set targets and metrics due to COVID.

Below are several excerpts from investors – collected by Insightia -- on their rationale for opposing the pay package at Walgreens Boots Alliance:   

Vanguard: “The Investment Stewardship team identified elements in the Walgreens compensation program that were not in the best long-term interests of Vanguard shareholders, particularly the use of upward adjustments during the pandemic—changes that did not appropriately reflect Walgreens’ performance versus peers. The company’s compensation committee employed discretion through the use of a scorecard for the final six months of the three-year compensation performance period— a time frame that coincided with the COVID-19 pandemic. We had questions about the rigor of the scorecard in part because of limited disclosure.”

Ontario Teachers’ Pension Plan: “We have reviewed the proposal and do not believe that the board has sufficiently justified the discretion applied to increase executive compensation. We believe the discretion exercised creates a disconnect between pay, and short-term and long-term performance.”

AEGON Investment Management: “The modification to yield payouts despite failure to achieve threshold performance may be viewed as counter to a pay-for-performance philosophy, especially in the context of negative short- and long-term shareholder returns.”

TXP Investments: “Investors have indicated that increases to long-term incentive payouts, particularly for performance cycles ending in 2020, are generally viewed as problematic.”

BMO Global Assets: “In particular, this has shielded management from negative consequences experienced by investors and other stakeholders.”

COVID-related compensation changes were also a source of shareholder opposition at Becton Dickinson and TransDigm. It remains unclear how many other companies will employ the same level of discretion in calculating executive compensation and whether shareholder opposition will remain high when they do. As to the first part of the question, Shaun Bisman, a pay and corporate governance consultant at Compensation Advisory Partners, told the Wall Street Journal that during the pandemic, “I don’t think we’ve ever seen anything like this before in terms of the number of changes we’ve seen in incentive plans.”