Taken from Insightia’s ‘Activism and Voting this Week’ newsletter.
Beneficiaries of the pandemic have experienced a tough ride when attempting to turn increased profits into bumper executive compensation.
Take the video game and multimedia industries, for example. Investor support for remuneration proposals at electronic gaming and multimedia companies has been decreasing year-on-year since 2018, but COVID-19 has accelerated this trend. Average support for remuneration proposals has dropped to 88.9% so far this year, compared to 96% in 2019 and 93.3% in 2020, according to Proxy Insight Online data.
In one particularly acute example, Zynga’s remuneration report won just 47.3% support at the U.S. gaming company’s May 17 annual meeting, despite revenue increasing from $1.3 billion in 2019 to a record-breaking $1.9 billion in 2020.
Aberdeen Standard Investments argued that the use of one-year performance-based measurements in its compensation structure was a cause for “serious concern,” while Norges Bank Investment Management noted that “such significant awards should be viewed under strict scrutiny,” when based on an increase in profits during the pandemic.
Activision Blizzard similarly earned $8.1 billion in revenue in 2020, a 25% increase year-on-year, but investors did not consider this sufficient rationale to justify CEO Bobby Kotick’s $154.6 million compensation package.
In a June 7 letter, Change to Win (CtW) Investment Group urged Activision investors to oppose the company’s “say on pay” vote, due to excessive CEO payouts, as well as the company’s ongoing “inadequate response to substantial shareholder opposition.”
CtW’s letter has clearly ruffled the Activision board’s feathers, so much so that the gaming company announced its remuneration vote will be adjourned until Monday, June 21, so the board can make extra efforts to justify its proposed payouts.
More broadly, investors are making it clear that they will not support proposals that are biased toward short-term performance.
BlackRock’s 2021 proxy voting guidelines reflect the importance of looking beyond the short-term impacts of the pandemic, the fund manager noting it will be more likely to support remuneration structures that “facilitate a focus on long-term value creation.”
This has been reflected in BlackRock’s voting this year. The fund manager opposed AT&T’s “say on pay” proposal, as well as the re-election of five compensation committee members, at the media conglomerate’s April 30 annual meeting. In a voting bulletin, BlackRock suggested that the company’s many “successes in 2020, that included HBO/HBO Max subscribers exceeding the target,” were insufficient to justify new WarnerMedia CEO, Jason Kilar, receiving a $48 million multi-year equity award.
“In the midst of historical performance challenges, we remain concerned about certain pay practices at AT&T,” BlackRock commented. “Outcomes should be aligned with shareholder interests – particularly the generation of sustainable long-term value.”
In a whitepaper published in February, Vanguard similarly said it would not support compensation committees retroactively adjusting performance targets or time horizons to account for increased profits during the pandemic and will look for a strong focus on long-term performance.
Companies that experienced a profit surge as a direct result of the pandemic are under just as much scrutiny to ensure executive payouts are as reasonable as their underperforming peers, and investors expect remuneration structures to align with long-term, sustainable value creation across the board.
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Rebecca Sherratt 