Dive Brief:

• Support for “say-on-pay” proxy proposals among Standard & Poor’s 500 companies rose to 90% this year from 87% in 2022 even though one out of five investors raised concerns that performance stock unit awards lack rigor, are too complex or disregard underperformance, EY said.
• Fifteen percent of investors said one-time special awards outside the normal pay plan are “red flags” that call out for scrutiny, while 17% plan to focus more on exploring whether pay is excessive for even the highest performing CEOs, EY said in a review of the 2024 proxy season.
• Investors look critically at “instances of compensation committees exercising discretion that significantly impacts pay outcomes,” Jamie Smith, director of EY’s Center for Board Matters, said Wednesday in an email response to questions. “Investors tell us that it calls into question the viability of the pay plan if the committee is constantly needing to add one-time awards or reset metrics.”

Dive Insight:

The total number of investor activist campaigns this year rose to 691, a 2.4% increase compared with 2023, EY said, noting that activists most targeted the consumer sector, launching 230 campaigns. Investors pursued only 183 campaigns in 2014, EY said, citing Capital IQ data.

Proxy proposals focused on environmental and social topics were most common, representing 63% of all proposals among S&P 1500 companies through June 18, EY said.

At the same time, average support for such proposals has declined from a peak in 2021 in part because of companies’ increasing transparency, according to EY. Such support fell to 19% this year from 21% in 2023.

“Companies are disclosing more about their environment and social initiatives,” Smith said.  “Given that and the progress they’re making, large investors perceive many proposals as redundant.

“In other instances, the proposals are narrower in focus and very prescriptive,” she said. “For instance, some seek operational changes that large asset managers believe should be left to management’s discretion.”

Investors have sharpened scrutiny of past acquisitions and capital allocation choices, reacting to a surge in borrowing costs from near zero beginning in 2022, EY said.

CEOs have responded, with 70% planning to pursue disinvestments, spin-offs or initial public offerings in the next 12 months, Smith said, citing a EY survey of CEOs in April.

Investors have also focused more on succession planning as the average length of CEO tenure among S&P 500 companies has fallen to 4.8 years in 2022 from 6 years in 2013, EY said, citing Equilar data.

“Increasing turnover across the senior management level may also be disrupting the internal CEO pipeline and related candidate development,” EY said.

Investors voice rising concern about company use of artificial intelligence, EY said, with 19% of investors saying that in meetings with companies they plan to prioritize the responsible use of the technology.

Top executives have apparently gotten the message, with nearly 70% of companies identifying AI as a risk factor in their 10-Ks compared with 20% last year, EY said.

During the 2025 proxy season, “investors are likely to put more focus on director accountability,” Smith said.

“A third of investors told us that in the current environment, all other things being equal, they are more likely to vote against specific directors than to vote for a related shareholder proposal if they have concerns about the board’s oversight of material risks and opportunities,” she said.

“Board and committee leaders, particularly nominating and governance committee chairs, will be under the most scrutiny in this regard,” Smith said.