Activist Investors and Executive Pay

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Shaun Bisman
Partner [email protected] 212-921-9365

Cedrick Jean-Louis
Analyst [email protected] 646-917-6208

Shareholders can influence a company's executive compensation program through a non-binding advisory vote known as "Say on Pay." While this vote doesn't directly allow shareholders to influence overall compensation policies, companies often maintain outreach programs to address shareholder concerns about specific aspects of the compensation plan. Another way for shareholders to have a say in executive compensation is by gaining a seat on the Board of Directors. However, the purpose of obtaining a seat is not solely for executive compensation reasons but to advocate for broader changes within the company. Achieving this is challenging and less common; investors typically pursue this through a proxy contest, where an investor advocates for change in company strategy and may raise executive compensation as an issue.

Investors who seek change through a proxy contest are often referred to as “activist investors.” This term describes individuals (such as hedge fund managers) or groups (like alternative investment firms) who acquire a stake in a company’s equity with the goal of increasing shareholder value, typically by gaining one or more seats on the Board of Directors. Once on the Board, these activists push for changes they believe will improve the company’s performance, strategy, or governance. These changes can take various forms, depending on the investor’s objectives. Common goals of activists include:

Enhance financial performance by advocating for cost reductions, optimizing capital allocation, or promoting share buybacks and higher dividends
Strategic changes such as encouraging the company to refocus on its core business or recommending mergers, acquisitions, or spin-offs of non-core assets
Seek changes in senior management or the Board of Directors

Activist investors aim for these changes to boost the company’s value, thereby increasing the worth of their own stake. However, they are sometimes criticized for prioritizing short-term gains over long-term stability.

This article updates Compensation Advisory Partners’ (“CAP”) research on 2015 – Activist Investors and Executive Pay. It aims to provide a refreshed perspective, incorporating recent developments related to activist investor campaigns.

What We Found

Between 2020 and 2024, activist investors have increasingly asserted their influence in boardrooms, achieving success in various proxy contests. To gain insight into their strategies, among companies in the Russell 3000 Index, CAP reviewed 48 proxy contests initiated by activist investors, finding that concerns about executive compensation programs were raised in 23 cases. Data indicates that executive compensation was often tied to broader concerns about the companies’ strategic direction, operational execution, and financial performance. Essentially, executive compensation disagreements were not the main and sole rationale for engaging in the contest. Instead, activist investors use these disagreements to highlight deeper underlying concerns with a company’s direction or performance to induce change. For instance, if total shareholder return (TSR) is not used as a performance metric while the company has faced a prolonged period of shareholder value decline alongside rising CEO compensation, activist investors will highlight these issues as signs of a flawed business strategy and misaligned incentive structures. In many cases, concerns about executive compensation support their broader calls for leadership changes, strategic adjustments, and stronger governance practices.

Over the past five years, activist investors have raised concerns about executive compensation in approximately 50 percent of proxy contests annually. Key compensation practices highlighted during 2020–2024 include:

Executive Compensation Issue	Number of Companies (n=23)	Percentage of Companies
Pay-for-Performance Misalignment	21	91%
High CEO Compensation	13	57%
Weak Corporate Governance Structure	6	26%
Outsized Peers	4	17%
Choice of / Adjustments to Performance Metrics	4	17%
High Dilution	3	13%
Excessive Perquisites	3	13%
Long-Term Incentive Plan Vehicles / Mix	3	13%
High / Increase to Board of Director Compensation	2	9%
Lack of Disclosure	2	9%
Excessive Change-in-Control Provisions / Golden Parachutes	2	9%

The chart shows that among the 23 companies where activists raised concerns about executive compensation, the most common issue was pay-for-performance misalignment (91 percent). Activists frequently argued that CEO compensation packages were insufficiently tied to company performance, advocating for changes to link pay more directly to long-term shareholder value rather than short-term performance metrics. They also often pointed out that CEO pay was disproportionately high compared to peers. Other prominent issues included excessive CEO compensation (57 percent) and weak corporate governance structures (26 percent). Less frequent concerns included outsized peer comparisons, performance metric adjustments (both 17 percent), high dilution, excessive perquisites, and long-term incentive plan design (all 13 percent). A smaller number of cases raised issues with high director compensation, lack of disclosure, or excessive change-in-control provisions (each 9 percent).

Ultimately, we found that activist investors often leverage executive compensation issues to strengthen their case for securing seats on the target company’s Board of Directors.

Target Companies

Proxy Battle Result	Total Shareholder Return (“TSR”) Performance
Proxy Battle Result	1-Year CYE Pre Contest	1-Year CYE Post Contest
Activist Gained Board Seat (n=11)
Average TSR Performance:	-7.2%	40.3%
Activist Did Not Gain Board Seat (n=12)
Average TSR Performance:	-0.9%	11.1%

CYE = Calendar Year-End. Note: For companies with proxy contests in 2024, TSR post contest represents year-to-date TSR (as of 12/17/24).

Successful Activist Campaigns

Of the twenty-three proxy contests that specifically targeted aspects of executive compensation, eleven ultimately resulted in the activist investor gaining board seats at the target company. The companies1 through 2020-2024, include: Masimo Corporation, Norfolk Southern Corporation, Southwest Gas Holdings Inc2, WisdomTree Inc, Illumina Inc, Pitney Bowes Inc, Apartment Investment and Management Company, Griffon Corporation, Exxon Mobil Corporation, and GameStop Corp.

The most common issue in these contests centers on the apparent misalignment between executive pay and company performance. For instance, activist investors argued that management at Norfolk Southern Corporation received substantial compensation packages despite the company losing millions in shareholder value during the same period. In this case, activists also pointed out that the Board awarded the CEO over $10 million in equity grants, even though the company missed all annual performance targets related to financial performance, customer service, and safety. This issue with executive compensation gave activists an opportunity to criticize the Board for weak corporate governance. Ultimately, their campaign was successful, and they were able to elect three of their nominees to the Board.

Activist investors often tie compensation-related concerns to broader business strategy issues, rallying support from other investors in the process. When shareholders are dissatisfied with their returns, they are more inclined to align with activist investors to drive change. This dynamic was evident in Carl Icahn’s high-profile contest with Illumina, where he not only succeeded in electing a board member but also saw the CEO resign shortly afterward.

Conclusion

There has been a rise in activist investors accumulating stakes in companies with the goal of pushing for change to enhance the company’s value. While our analysis focused on proxy contests specifically addressing executive pay issues (e.g., pay-for-performance misalignment), there are also cases where companies reach settlements with activist investors, avoiding a public confrontation and granting them one or more seats on the Board.

To be well-prepared, Boards and Compensation Committees should take a proactive approach:

Monitor 13D Filings (Schedule D) to see if an individual or group acquires more than 5 percent of a company’s voting shares
Ensure the Board has a strategy for effectively engaging with shareholders such as setting up regular communication channels
Align executive compensation with performance
Conduct annual reviews of executive compensation programs
Ensure transparent and clear communication on pay programs / levels and compensation philosophy
Proactively seek feedback from shareholders throughout the year

The Compensation Committee should collaborate with management to create an executive compensation program that can be defended based on the company’s performance. By taking these steps, companies can better defend their executive compensation programs during a proxy vote and minimize the chances of conflicts with activist investors or shareholders. Being transparent, responsive, and proactive is key to managing shareholder expectations and ensuring a smoother voting process.

Appendix

Summary of Activist Campaigns

Company	Activist	Year	Executive Compensation Issue Highlighted By Activist	Contest Result
Masimo Corporation Global medical technology company	Politan Capital Management	2024	Bottom 1% of Russell 3000 for Say-on-Pay vote results CEO annual compensation is 2x peer levels Misuse of company assets i.e. charitable donations, security, and the corporate jet Employment agreement guarantees CEO ~$600 million and acts as a “poison pill” forbidding shareholders from replacing 1/3rd of the Board	Two dissident nominees elected to the Board CEO removed from the Board and resigned subsequently
Medallion Financial Corp. Commercial and consumer loan company	ZimCal Asset Management	2024	President & COO’s compensation is too large compared to cumulative profits Belief that executives should be compensated for core performance excluding non-core, non-recurring items. Core performance has actually declined every year since the peak in 2021 however bonuses have increased Board approved $1.4 million bonus and perquisites of $140k for President & COO despite $39.9 million loss	No dissident nominees elected to the Board
Xperi Inc. Technology company	Rubric Capital Management	2024	Excessive compensation vs. peer group (and a failure to identify peer group in the proxy) Lack of performance incentives. Where performance metrics are indicated, Board is not transparent about hurdles Significant dilution from restricted stock units (RSUs) since spin-off from predecessor, with Board granting 11% of the float to insiders in 5 quarters Additional one-time bonus granted in July 2023 on top of normal-course compensation schemes to further enrich executives – without transparency	No dissident nominees elected to the Board
Norfolk Southern Corporation Rail transport services company	Ancora Holdings Group LLC	2024	Failed to adequately include a safety component in the CEO’s initial compensation package Despite being among the worst in industry TSR performance over CEO tenure, CEO was paid more than $23 million The Board granted more than $10 million in stock and option awards to CEO in 2023 despite missing all 6 annual incentive targets pertaining to financial performance, customer service and safety	Three dissident nominees elected to the Board
The Walt Disney Company Entertainment and media company	Trian Partners	2024	“Over-the-top” compensation packages granted to CEO CEO received $216 million in total compensation despite Disney’s poor TSR	No dissident nominees elected to the Board
Alkermes plc Biopharmaceutical company	Sarissa Capital Management	2023	Over the last 15 years, Alkermes underperformed the Nasdaq Biotechnology Index by 341% while the CEO was rewarded with over $150 million in compensation	No dissident nominees elected to the Board
Masimo Corporation Global medical technology company	Politan Capital Management	2023	Failed Say-on-Pay 6 of the last 12 years; bottom 1% of the Russell 3000 for Say-on-Pay results CEO annual compensation is 2x peer levels CEO excessive change-in-control payment that is 38x peers Misuse of company assets i.e. charitable donations, security, and the corporate jet Employment agreement guarantees CEO ~$600 million and acts as a “poison pill” forbidding shareholders from replacing 1/3rd of the Board	Two dissident nominees elected to the Board
Mind Medicine (MindMed) Inc Biopharmaceutical company	FCM MM Holdings	2023	Approved full performance payouts despite executive failure to improve stock price Approved golden parachutes for management	No dissident nominees elected to the Board
WisdomTree, Inc. Financial services company	ETFS Capital	2023	CEO has accumulated over $20 million in compensation over the last five years all while presiding over the destruction of approximately $921 million in stockholder value during the same period	One dissident nominee elected to the Board
Illumina, Inc. Biotechnology company	Carl Icahn	2023	Questions regarding the independence of independent Chair of the Board Despite stock declining 62% resulting in $50 billion of value destruction, Board increased CEO compensation with an 87% increase to $27 million	One dissident nominee elected to the Board Chair of Board removed CEO resigned shortly after
Blue Foundry Bancorp Holding company for Blue Foundry Bank	Lawrence Seidman	2023	Disagree with management’s proposed approval of stock-based benefit plan which would allow directors and CEO to be paid restricted stock and options despite company’s poor financial performance	No dissident nominees elected to the Board
Pitney Bowes Inc. Technology company	Hestia Capital Management	2023	Lack of Board independence, particularly on the compensation committee CEO pay increase of more than 40% in 2022 despite significant stockholder value deterioration Exorbitant golden parachute of nearly $23 million upon termination following a change in control	Four dissident nominees elected to the Board CEO resigned months later
Apartment Investment and Management Company Real estate investment trust	Land & Buildings Investment Management	2022	Responsible for paying the bulk of Apartment Income REIT Corporation’s CEO compensation despite completing spin-off Payments made to executive team family members for “vague” services	One dissident nominee elected to the Board
Hasbro, Inc. Toy and game company	Alta Fox Capital	2022	Misaligned executive compensation with performance given relative performance in shareholder return and S&P 500 in same period Compensation committee consistently lowered performance targets despite declining performance CEO pay outsized peers despite 4th lowest TSR	No dissident nominees elected to the Board
Genworth Financial, Inc. Insurance company	Scott Klarquist	2022	CEO has been given $70 million in total compensation in the past nine years, including $30 million in total cash compensation. Meanwhile, the value of Genworth’s stock fell 50% during the same period	Activist withdrew their nomination before the annual meeting
Southwest Gas Holdings, Inc. Natural gas utility holding company	Icahn Enterprises L.P	2022	Despite underperformance, management increased compensation CEO pay increased 132% over period of time where share price increased by just 15%	Settled and at least three and up to four dissident nominees elected to the Board CEO resigned shortly after
Huntsman Corporation Chemical company	Starboard Value	2022	Company has poor pay-for-performance alignment Frequently changes performance peers and uses two different peer sets to benchmark performance and compensation Lack of board independence leading to weak corporate governance Failure to tie pay to performance	No dissident nominees elected to the Board
Griffon Corporation Holding consumer products company	Voss Capital	2022	$30 million paid to top four executives in 2021 and highest CEO pay of any of its 21 proxy peers on average over the past 10 years while producing bottom tier total returns for shareholders NEO compensation equaled 27.4% of pretax income CEO compensation 10.5x peer group median “Cherry picking” new peers with higher CEO pay and lower TSR Consistent underperformance compared to S&P 600 median approval for Say-On-Pay from 2014-2021	One dissident nominee elected to the Board
Box, Inc Cloud-based content management company	Starboard Value	2021	Lack of disclosure around compensation as only 3 NEOs are disclosed Stock-based compensation expense as percentage of market cap is twice peer group median, resulting in dilution Granted 100% time-based restricted stock for its long-term equity program	No dissident nominees elected to the Board
Stratus Properties Inc. Diversified real estate company	Oasis Management	2021	Lack of director independence across Board but also the compensation committee No correlation between variable pay and performance Due to lack of benchmarks, payout targets, or any pay formulas disclosed, one can conclude variable pay ends up being highly subjective Compensation remains excessive	No dissident nominees elected to the Board
Exxon Mobil Corporation Energy and chemical company	Engine No. 1	2021	From 2017-2019 ExxonMobil’s TSR was -12%, yet CEO compensation rose 35% in the same period Disconnect in pay and performance stems from a compensation plan that can reward volume over sustainable value Metrics are not assigned specific weights, allowing for ad hoc changes including alteration of key compensation metrics	Three dissident nominees elected to the Board
Delek US Holdings, Inc. Downstream energy company	CVR Energy Inc.	2021	CEO’s total compensation of $81 million over the last eight years was “eye-popping” and was never properly disclosed to shareholders	No dissident nominees elected to the Board
GameStop Corp Video game, consumer electronics, and collectibles company	Hestia Capital Management	2020	Total compensation to GameStop’s Board and executives was approximately 15% of the Company’s market capitalization at fiscal year-end 2019 where stockholders lost more than 65% of their investment Management’s bonus payout was 196% for SG&A cost savings in 2019, even though SG&A as a percentage of revenue and gross profit reached all-time highs	Two dissident nominees elected to the Board

Note: The comments in the above chart are paraphrased or direct quotes from activist investors’ proxy contest materials/filings and do not reflect the view of CAP.

1 Masimo Corporation experienced one proxy contest in 2023 and another in 2024.
2 Southwest Gas Holdings Inc. settled with the activist for at least three and up to four Board seats prior to the vote.