A little more than 12 years after the 2010 Dodd-Frank Act was signed into law, the SEC has issued final rules on the topic. This was expected after the SEC re-opened the comment period on Pay Versus Performance disclosure in January. Intended to standardize the presentation of existing information related to the relationship between executive pay and company performance for investors, the final rules may also pose a new and significant burden on some companies with respect to their equity valuation processes and are substantially different from the proposed rules.

Dodd-Frank 953(a) requires issuers to show “…the relationship between executive compensation actually paid and the financial performance of the issuer…” The SEC’s definition of “compensation actually paid” is far removed from how many would interpret this term, particularly for equity-based compensation. It has decided to use an approach for equity-based compensation similar to “realizable pay” and essentially “marks to market” outstanding and unvested equity awards on a “fair value” basis from the grant date to the vesting date. This approach effectively accrues the equity value over the vesting period, with the heaviest impact on value likely to be in the year of grant. It is a fundamentally different approach from the proposed rules of 2015 where the value of equity would have been recognized in its entirety upon vesting, similar to existing definitions of “realized pay.”

The Pay Versus Performance requirements are meant to enable shareholders to directly compare executive compensation with company financial performance over a multi-year period. In the SEC’s view, assigning the burden of computing this relationship to investors is costly and inequitable. Therefore, the SEC implemented rules to standardize information presentation without, in its view, imposing unusual additional expense on issuers.

The new required disclosures are effective for filings at the next annual meeting for companies with fiscal years ending on or after December 16, 2022, so for calendar year companies, the next proxy will have to include the new disclosure.

CAP submitted comments to the SEC on the 2015 Proposed Rules, and our statement can be found here.

Overview of Final Rules under Section 953(a)

The final rules require companies to prepare a table disclosing compensation actually paid to the Named Executive Officers (NEOs) next to Summary Compensation Table totals and key metrics, over a five-year history (Exhibit 1). The metrics required to be disclosed in the table are as follows:

  • Company’s indexed total shareholder return over the period1
  • Indexed total shareholder return of peer group
  • GAAP net income
  • A financial metric of the company’s choosing

Exhibit 1

Year Summary Compensation Table Total for PEO Compensation Actually Paid to PEO Average Summary Compensation Table Total for Non-PEO NEOs Average Compensation Actually Paid to Non-PEO NEOs

Value of Initial Fixed $100 Investment Based On:

Net Income (Loss) Company Selected Measure
Total Shareholder Return Peer Group Total Shareholder Return
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Year 1
Year 2
Year 3
Year 4

To be required in the 2024 proxy statement

Year 5

To be required in the 2025 proxy statement

To supplement this tabular disclosure, companies will need to describe the relationship between compensation actually paid and each of the financial metrics included in the table, using a graphical and/or narrative approach. Finally, companies must provide a list of three to seven metrics they deem most important in making executive compensation decisions, which may include non-financial measures, if a minimum of three are financial metrics (Exhibit 2).

Exhibit 2

3-7 Most Important Company Performance Measures for Linking Executive Compensation to Company Performance (For PEO & Other NEOs)

The rules require a three-year history in the proxy statement for fiscal year ended on or after December 16, 2022, a four-year history in the 2024 proxy and a full five-year history in 2025 and beyond. Smaller Reporting Companies (SRCs) will have pared-down requirements. The new Pay Versus Performance disclosure may be located anywhere in the proxy or information statement; it does not need to be incorporated into the Compensation Discussion & Analysis.

Pay Versus Performance Table

Compensation actually paid to the Principal Executive Officer(s) and other NEOs is intended to reflect a fair value assessment of compensation lined up with the most recent fiscal year. At a high level, the calculation for compensation for the PEO and other NEOs will be as follows:

  • Cash compensation will likely mirror the Summary Compensation Table for most situations
  • For companies with a defined benefit pension, the amount in the “change in pension value” will be replaced by the amount that is reflective of only the service cost for the respective year2
  • And now for equity…. this is where it gets complicated!!! In contrast to the proposed rules, companies will need to revalue equity at the end of each year and report the change in value. Each in-process award will be “re-valued” (see details in exhibit) and vested awards will be valued based on the vesting date
    • Awards with performance conditions deemed improbable to be achieved will be subtracted from the total, potentially giving shareholders insight into expected performance sooner than they would have received in the past since most companies did not disclose expected payouts until the end of the performance cycle

In response to sentiment that TSR does not capture the full financial picture of a company, and the reality that other metrics are consistently used in long-term performance share awards, the final rules require disclosure of TSR, TSR for the company-disclosed peer group3, GAAP Net Income and a third metric defined by the company. TSR is calculated as the value of a $100 fixed investment over the measurement period. The company-selected measure is intended to be a financial performance metric that the company finds represents the most important performance metric not already shown in the table for evaluating the link between compensation actually paid and company performance.

Key Performance Metrics Table

In the second required table, companies must report at least three and up to seven performance metrics that inform actual compensation decisions during the period. Three of the metrics must be financial performance metrics and any additional metrics may be non-financial measures if the company deems them among the seven most important measures impacting compensation actually paid. The company-disclosed metric in the pay versus performance table must be one of the metrics included in this table. The measures do not need to be ranked, a modification from the proposed rules in response to the complexity of determining rankings.

The SEC believes this disclosure will provide investors with visibility into which performance measures most strongly impact actual compensation paid and help investors assess whether compensation programs appropriately incent executives without undue burden or tedious complexity for issuers. With this list, the SEC aims to help companies reduce the risk of misrepresenting or providing an incomplete picture of pay versus performance alignment.

In practice, we anticipate that the listed metrics will align with the metrics used in the annual and long-term incentive awards. Companies will then have the opportunity to discuss the rationale for the metrics and how they influence compensation.

Description of Relationship between Actual Compensation and Financial Performance

Companies must substantiate the relationship between executive compensation actually paid and net income, and between executive compensation actually paid and the company-selected metric through graphs, charts and/or narrative text. Since GAAP metrics are used in the table and many companies use non-GAAP metrics in their compensation programs, this component is a key opportunity for issuers to provide compelling rationale for the measures and approaches used in their program that differ from GAAP net income.

Equity Valuation Under the Final Rules

The SEC has implemented equity valuation standards that present a departure from normal processes for most companies.

Under the Final Rules, equity awards are valued annually until vest to illustrate mid-cycle changes in fair value. The rules follow a syntax of addition and subtraction to produce a value of total equity earned by the executive that aligns with the financial performance measurement year4. Companies subtract the equity award values reported in the Summary Compensation Table and adjust based on the following:

  • Fair value of equity awards granted, outstanding and unvested in the covered fiscal year as of the fiscal year end
  • Change in fair value during covered fiscal year of awards granted in prior years that remain outstanding and unvested as of the end of the fiscal year
    • For performance-contingent equity awards, fair value as of the end of the fiscal year based on probable outcome
  • Change in fair value from end of prior fiscal year to vesting date for awards granted in prior years that vest in the covered fiscal year
  • Fair value on date of vest for awards granted and vested in the same covered fiscal year
  • Dollar value of any dividends or other earnings paid on stock or option awards in the covered fiscal year prior to vesting that are not otherwise reflected in fair value assessments of such awards

The implications of this methodology are aptly described in the following table produced by Equity Methods, a leading firm in the equity valuation space. See Equity Methods’ blog post for more detail on this topic and how companies should prepare for this disclosure.

Use Case Treatment Comments and Description
1) Equity awards granted during the year that are outstanding and unvested Year-end fair value
  • For options, this may require using a lattice-based modeling approach
  • For TSR awards or any awards with a market condition, the Monte Carlo simulation used to initially value them must be retooled to produce an interim period fair value
  • For awards with a performance condition, the fair value will be the stock price as of the fiscal year end, provided that the performance condition is deemed probable as of this date
  • For stock awards (including performance-based and market-based awards), the value of dividends or dividend equivalents accrued through the end of the fiscal year
2) Awards granted in prior years that are outstanding and unvested Change in fair value
  • Same treatment approaches as above, except the comparison is to the change in fair value
  • Suppose an award was granted in 2021 with an interim fair value as of 12/31/2021 of $15 and an interim fair value as of 12/31/2022 of $18, then the differential of $3 would be used
  • For awards with performance conditions that are deemed probable at the end of the year, the consideration will be they will be measured as if they are probable at the beginning and end of the period
3) Awards granted and vesting during the year Change in fair value through vesting date
  • For standard full-value awards, this will be the realized pay amount as of vesting (e.g., no Monte Carlo simulation for TSR metrics)
  • For options where the award is vested but still exercisable, this may involve modeling as described above
4) Awards granted in prior years that vest during the year Change in fair value
  • Combination of use cases #2 and 3 in that the fair value as of the vesting date is used
5) Awards granted in prior years that do not vest Change in fair value
  • This would include a forfeiture or award with a performance condition where the vesting is reclassified to be "improbable"
  • This same outcome will automatically happen to an award with a market condition in the Monte Carlo simulation as the condition becomes increasingly unattainable
6) Dividends or similar paid on stock and options that are not embedded in the fair value Actual amounts paid
  • These are actual amounts delivered to the employee, but should not be counted if the fair value estimates in the prior calculations also capture these same amounts


Companies with fiscal years ending on 12/31/2022 will need to disclose this new information in their 2023 proxy statements. Given the complexity of the new rules and the requirement to provide supporting narrative disclosure that explains the relationship between compensation actually paid and financial performance, we recommend you begin the process of putting together the table now, recognizing you will not be able to finalize some items until after the end of 2022. We recommend that you do the following things between now and the end of the year:

  • Identify data requirements for the new table (e.g., required equity valuations at the end of the year and at vesting dates, pension plan service cost, TSR, peer TSR, net income, etc.)
  • Agree on peer group to be used for TSR
  • Establish an approach to be used internally to determine the additional financial metric and the list of the three to seven most important financial metrics
  • Reach out to internal/external advisors to help compile required information (e.g., finance/accounting, external equity valuation experts, actuaries)
  • Develop initial mock-up of table with placeholders for year-end 2022 compensation and performance values
  • Develop draft narrative disclosure describing the historical relationship between compensation actually paid and company performance
  • Review draft disclosure with management and Compensation Committee

Given the newly required tables, companies will need to re-think the format of their disclosures to comply with the requirements and make the narrative easy to read for shareholders.

1 Total shareholder return indexed to $100 invested at the beginning of the period the table covers

2 This will also include prior service cost if a plan is amended in such a way that impacts service cost in prior years

3 The peer group may be the same as the one used in the 10-K or an alternative peer group, such as the one used for benchmarking purposes. The rationale for the peer group and any changes year over year must be provided as well as the impact of changing the peer group on the relative TSR calculation

4 Equity awards granted prior to the base measurement year (prior to 2020) will not be included in the calculations.

Compensation Advisory Partners (CAP) conducted a study of executive compensation trends in the banking industry. The study includes 18 U.S. banks with greater than $50 billion in assets across three groups: Money Center banks (n=4), Custody banks (n=3), and Super Regional banks (n=11). This report summarizes the findings of CAP's study, including the relationship between pay and performance in 2021, executive compensation trends, and outlook for the industry in 2022.

Key Themes

  1. 2021 Pay and Performance Outcomes
    Chief executive officer (CEO) compensation increased 21% at median, primarily through higher incentives. Increases in CEO pay were in line with strong 2021 earnings, which were buoyed by releases of loan loss provisions taken in 2020.
  2. Incentive Plan Design Trends
    All banks in this study considered Diversity, Equity and Inclusion (DE&I) progress as part of the annual incentive decision in 2021, typically evaluated on a qualitative basis.
  3. Special Retention Awards
    The use special one-time long-term incentive awards increased among large financial services companies, including the banks in our study, in 2021. These awards, in some cases, received pushback from shareholders and proxy advisory firms that resulted in lower Say-on-Pay outcomes.
  4. Looking Ahead
    The performance outlook for 2022 is less certain. Results may vary significantly based on business mix and balance sheet makeup.

2021 Pay and Performance Outcomes – Significant Pay Increases for Strong Results

The banks in CAP’s study had strong bottom line results in 2021. Earnings per share (EPS) and Return on Equity (ROE) improved significantly versus 2020 as the credit environment improved, and banks reversed pandemic-related loan loss provisions from 2020. Over the same period, Pre-Provision Net Revenue (PPNR), which does not include the impact of loan loss provisions, was down at median, though several banks in our study grew PPNR versus 2020 primarily through increases in fee income. 1-year Total Shareholder Return (TSR) was strong over this period. 2021 TSR for the banks in CAP’s study was +38 percent, at median, while the S&P 500 returned +29 percent.

The chart below summarizes median performance results for the banks in CAP’s study:


Median Percent Change

Year Ended
December 31, 2020

Year Ended
December 31, 2021

Earnings per Share



Pre-Provision Net Revenue



Return on Equity (Basis Point Change)

-371 bps

+527 bps

1-Year Total Shareholder Return



3-Year Total Shareholder Return (Cumulative)



Source: S&P Capital IQ Financial Database.

Median Change in CEO Compensation Money Center Custody Super Regional -9.6% 20.5% -2.1% 18.0% 4.7% 21.5% (15.0%) (10.0%) (5.0%) 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 2019-2020 2020-2021

In 2021, total direct compensation (i.e., the sum of base salary, annual cash bonus, and awarded long-term incentives), increased 21 percent, 18 percent, and 22 percent at median for the money center, custody, and super regional banks, respectively. Banks primarily delivered increases through incentive compensation. 2021 cash bonuses were up 36 percent at median as 2021 results surpassed target performance goals and improved significantly versus 2020 due primarily to the quicker than expected economic recovery and resulting releases of loan loss provisions. Several banks in CAP’s study even disclosed making negative adjustments to incentive plan payouts to recognize the benefit of the releases of loan loss provisions. This stands in stark contrast to 2020 where companies generally failed to meet targets set prior to the start of the pandemic and funded bonuses below target and below 2019 bonuses. Long-term incentives also increased significantly at median (i.e., +21 percent), compared to 2020 when banks increased long-term incentives more modestly (i.e., +5 percent at median).

+2.5% +6.9% +5.4% -5.8% +54.5% -58.4% (80.0%) (60.0%) (40.0%) (20.0%) 0.0% 20.0% 40.0% 60.0% 80.0% 2019-2020 2020-2021 Median Change in Compensation and Benefits Expense Compensation and Benefits Expense As % of Revenue As % of Net Income

Compensation and benefits expense increased on an absolute basis in both 2020 and 2021. However, as a percentage of revenue and net income, compensation and benefits expense increased in 2020 and decreased in 2021. This likely demonstrates that while 2020 was a challenging performance year, banks maintained a level of compensation necessary to retain key talent. In 2021, banks increased incentives to reward for improved earnings and recognize the intensely competitive talent market, but did so at a reasonable level relative to revenue and earnings growth.

Incentive Plan Design Trends – Focus on DE&I

Most banks in our study did not make changes to annual or long-term incentive plan metrics or structure in 2021. One area that continues to evolve is how banks tie incentives to Environmental, Social, and Governance (ESG) considerations. As companies and shareholders spend more time focusing on ESG strategies, companies are increasingly incorporating ESG metrics into incentive plans to support these strategies. To-date banks have primarily focused on DE&I in incentive plans. All of the banks in our study disclose considering DE&I achievements as part of the incentive decision-making process. Most banks include DE&I in the individual or strategic component of the annual incentive plan and evaluate results on a qualitative basis. Specific metrics include diversity in hiring, use of diverse suppliers, and employee engagement. Several banks in our study also disclose considering other ESG factors (e.g., aligning investing activities to climate commitments) as part of the annual incentive determination.

Special Equity Awards

We noted an increased use of special one-time equity awards among banks in 2021 and 2022 to-date. Such awards are typically reserved for special situations, such as supporting retention and incentivizing significant growth or business transformation. These awards, particularly those that provide executives with the opportunity to earn significant value, are often subject to longer-term vesting periods (i.e., five or more years) and payout based on the achievement of shareholder value creation goals. Shareholders and proxy advisory firms often push back on these types of awards, demonstrated by the decline in Say-on-Pay support in 2022 for many of the banks that granted special equity awards in 2021.

One notable example in our study is JPMorgan. The bank granted awards worth $53 million and $28 million to the CEO and President & COO, respectively, to support retention of these key leaders. The awards consisted of stock appreciation rights that vest after five years. Likely due to the significant value of these awards, both major proxy advisory firms, Institutional Shareholder Services (ISS) and Glass Lewis, recommended that shareholders vote against JPMorgan’s Say-on-Pay proposal and JPMorgan failed Say-on-Pay, receiving only 31% support from shareholders.

Looking Ahead to the Second Half of 2022

2021 was a strong earnings year for banks and executive compensation levels reflected that. The outlook for 2022 is less certain and performance results may vary significantly based on business mix and balance sheet makeup. Provision releases, which had a significant positive impact on bank earnings in 2021, will likely not be available to banks in 2022. Additionally, the rising interest rate environment, inflation, and macroeconomic uncertainty are expected to impact bank performance in 2022.

The Federal Reserve has increased interest rates significantly in 2022 and anticipates additional rate hikes in the second half of the year. Rising interest rates are expected to drive higher net interest income but decrease demand for loans. The degree to which the rate environment benefits 2022 earnings will vary by bank based on the sensitivity of the balance sheet to increases in interest rates and the cost of funds.

The volume and value of mergers and acquisitions (M&A) transactions are expected to decline in 2022 due to economic uncertainty, inflation, and rising interest rates. This will adversely impact fee income for investment banking businesses.

In light of these dynamics, the first half of 2022 told a different performance story than 2021. PPNR is slightly up at median, likely due to increased interest rates, and EPS is down at median without the benefit of provision releases. Total shareholder return through the second quarter for the banks in our study is down approximately 20% at median, commensurate with the S&P 500. At the same time, the current talent market is intensely competitive, particularly in key areas for banks such as digital and commercial banking. As we approach the end of 2022, banks will need to balance aligning pay with 2022 performance results and shareholder returns, which may be down versus 2021, with the need to attract and retain critical talent.

For questions or more information, please contact:

Eric Hosken
[email protected]

Mike Bonner
[email protected]

Stefanie Kushner
[email protected]

Theo Allen and Felipe Cambeiro provided research assistance for this report.

Banks in CAP’s Study (n=18)

Money Center Banks

  • Bank of America Corporation
  • Citigroup, Inc.
  • JPMorgan Chase & Co.
  • Wells Fargo & Company

Custody Banks

  • The Bank of New York Mellon Corporation
  • Northern Trust Corporation
  • State Street Corporation

Super Regional Banks

  • Citizens Financial Group, Inc.
  • Comerica, Inc.
  • Fifth Third Bancorp
  • Huntington Bancshares, Inc.
  • KeyCorp
  • M&T Bank Corporation
  • The PNC Financial Services Group, Inc.
  • Regions Financial Corporation
  • Truist Financial Corporation
  • U.S. Bancorp
  • Zions Bancorporation

Blackrock, Vanguard, and State Street (the “Big Three”) are among the largest and most influential institutional investors in the world with current assets under management (AUM) of $10.0, $8.2, and $4.1 trillion respectively. Given their size, they have ownership stakes in many U.S. publicly traded companies. As a result of their holdings, the Big Three have the power to influence proxy voting outcomes, and any policy update, should be closely monitored by companies.

For the 2022 proxy season, the Big Three released their proxy voting guidelines and engagement priorities. These updates are a way for the public, and companies to understand the Big Three’s positions and priorities for 2022.

In the following chart we summarize a variety of policy updates from the Big Three that focuses on executive compensation, Compensation Committee voting, human capital management, board composition and board of director overboarding.

2022 U.S. Proxy Voting Guidelines Key Updates

Focus Area


Executive Compensation


  • Does not have position on whether companies should include Environmental, Social, & Governance (ESG) metrics in their compensation plans. However, if a company includes ESG metrics, the metrics must be aligned with the strategy and business model and incorporate the same rigors as other financial or operational targets.
  • Expect performance-based compensation to include metrics that are “relevant to the business and stated strategy risk.”


  • No update for 2022. For full policy, please see the link provided at the end of this document.

State Street

  • No update for 2022. For full policy, please see the link provided at the end of this document.

Compensation Committee Voting


  • Previously noted that they would consider voting against Compensation Committee members where a company has failed to align pay with performance. The new language states that they will vote against Compensation Committee members.


  • No update for 2022. Policy only applies if Vanguard votes against a company’s Say on Pay proposal for two consecutive years, in which Vanguard will vote against the Compensation Committee members.

State Street

  • As disclosed in 2021, for S&P 500 companies, may vote against the Chair of the Compensation Committee if the company does not disclose its Equal Employment Opportunity-1 (EEO-1) report.

Human Capital Management (HCM)


  • New section added in 2021.
  • In 2022 added that they expect companies to show, “a robust approach to HCM and provide shareholders with disclosures to understand how their approach aligns with their stated strategy and business model.”
  • Where a company’s practices do not appear aligned with long-term shareholders’ interests or where disclosures do not provide sufficient clarity on the board and management’s effectiveness in addressing HCM issues, Blackrock may vote against directors responsible for these decisions.


  • No update for 2022. Expect boards to disclose relevant processes, programs and metrics used to measure a company’s diversity, equity and inclusion programs.

State Street

  • Expectations for HCM disclosures include the following topics:
    • Board Oversight: Board oversees human capital-related risks and opportunities;
    • Strategy: How the company’s approach to HCM advances its overall long-term business strategy;
    • Compensation: How pay strategies help to attract and retain employees and incentivize contributions to an effective human capital strategy;
    • Voice: How concerns and ideas from employees are solicited and how the workforce is engaged; and
    • Diversity, Equity and Inclusion: How the organization advances diversity, equity and inclusion.
  • Expects companies to provide detailed public disclosure on these topics.
  • For companies not making progress in these areas, State Street may support shareholder proposals or vote against directors.

Board Composition

Racial/Ethnic Diversity


  • Boards should target 30% membership diversity and have at least one director who identifies from an underrepresented group.
  • Blackrock may vote against the members of the Nominating / Governance Committee for an apparent lack of commitment to board effectiveness.
  • Expects companies to disclose the aspects of diversity the company believes are relevant to its business and how the diversity characteristics of the board, in aggregate, are aligned with the company’s long-term strategy and business model and whether a diverse slate of nominees is considered for nomination.


  • Boards can inform shareholders of the board’s current composition and related strategy by disclosing:
    • Statements of the boards intended composition strategy, including year-over-year progress;
    • Policies related to promoting progress toward increased board diversity; and
    • Current attributes of the board’s composition.
  • Policy clarifies that a board should represent diversity of personal characteristics inclusive of at least diversity in gender, race, and ethnicity on the board.
  • Policy also clarifies that boards should take action to reflect board composition that is appropriately representative, relative to their markets and to the needs of their long-term strategies.
  • Board diversity disclosure should at least include the genders, races, ethnicities, tenures, skills and experience that are represented on the board.
  • Disclosure of personal characteristics (such as race and ethnicity) should be on a self-identified basis and may occur at an aggregate level or at the director level.
  • Vanguard will generally vote against the Nominating or Governance Chair if a company’s board is not making sufficient progress in its diversity composition and/or in addressing its board diversity-related disclosures.

State Street

  • As disclosed in 2021, S&P 500 companies in 2022 should have a minimum of at least 1 director from an underrepresented community.
  • State will vote against the Chair of the Nominating Committee if this requirement is not met.
  • State Street may vote against the Chair of the Nominating Committee of an S&P 500 company if the company does not disclose the racial and ethnic composition of their boards.

Board Composition

Gender Diversity


  • As noted above, boards should target 30% membership diversity and have at least two directors who identify as female.
  • Blackrock may vote against the members of the Nominating / Governance Committee for an apparent lack of commitment to board effectiveness.


  • See policy under Racial/Ethnic Diversity above.

State Street

  • For 2022, companies must have at least one female director on the board (prior policy only applied to major indices).
  • For 2023, any company in the Russell 3000 must have at least 30% female directors on the board.
  • State Street may vote against the Nominating Committee Chair if a company does not meet the requirements listed above.
  • State Street may vote against all the members of the Nominating Committee if a board does not meet the requirements outlined above for three years in a row.

Director Overboarding


  • No update for 2022. Current policy is two public company boards for active executives. For non-executive directors the guideline is four boards.


  • Two public company boards for a named executive officer (NEO). The two boards could comprise either the NEO’s “home board” plus one outside board or two outside boards if the NEO does not serve on their home board. For non-executive directors, there is no change to the current policy (4 public company boards).

State Street

  • No update for 2022. Commencing in March 2022, two public company boards for an NEO, three public boards for a non-executive Board Chair or lead independent director and four public company boards for non-executive directors.
  • New for 2022, State Street would waive their policy if a company discloses its own director commitment policy in a publicly available manner (e.g., corporate governance guidelines, proxy statement, company website).

As summarized above, there has been a focus over the last few years on ESG, particularly on diversity among the board of directors and workforce, human capital management and climate change (not summarized above). The Big Three believes companies that focus on these issues will enhance a company's ability to maximize long-term shareholder value.

This article highlights select changes and updates to the Big Three's voting policies. For full detail related to all the proxy voting guidelines, please visit:



State Street:

Video available through American Banker, subscription required

2020 was a challenging year for banks. The impact of COVID on the economy as well as changes to accounting for loan loss provisions were evident in weaker financial and stock price performance in 2020 for many banks and yet CEO compensation increased. Learn from experienced executive compensation consultants about the challenges Compensation Committees faced in 2020, why pay levels increased relative to 2019, what were common COVID-related compensation changes, and what changes were made for the 2021 incentive plan design. Also, hear about if and how banks are linking executive compensation to diversity and inclusion metrics given the increased focus on ESG. The compensation consultants will share findings from their 2020 compensation study, lessons learned from 2020, and best practices for 2021 and beyond.

Say on Pay arrived in 2011, born out of the SEC’s rule-making efforts to reform corporate governance under Dodd-Frank after the financial crisis. This non-binding advisory vote, which is an annual event at most companies, allows shareholders to cast votes for or against Named Executive Officer (NEO) compensation. While earning simple majority support is technically a passing result, most companies strive for and achieve significantly higher levels of support. Investor support of compensation programs is influenced by many factors, which primarily include magnitude of pay, pay practices, and stock price performance.

In 2020, COVID-19 significantly disrupted the global economy, causing many companies to re-evaluate their compensation programs. Proxy statements filed in 2021, which will discuss compensation during the COVID pandemic year, will depart from previous norms. In anticipation of these filings, CAP has reviewed Say on Pay voting results at Russell 3000 companies in 2020, and since inception, to gauge the current landscape with an eye on what may occur with 2021 Say on Pay results.

Say on Pay Overview

Russell 3000 Historic Results

2020 marked the 10th year of Say on Pay voting. To date, voting results have generally been very consistent over time. Median support among Russell 3000 companies has been approximately 95% in each of the past 10 years. Most companies receive support from over 90% of shareholders, with an average of 74% of companies receiving support in the 90-100% range. Consistent vote outcomes are seen at the top and the bottom end of the range. The percentage of companies falling in each range shown below has been consistent throughout the 10-year history of Say on Pay voting.

All Companies


2011 – 2020



Median Level of Support



94.7% – 95.6%

>90% Support



70.0% – 76.8%

2%2%3%1%2%2%2%2%2%2%2%2%2%2%2%2%2%2%3%2%3%4%4%4%4%3%4%4%3%4%5%6%5%5%6%6%6%7%7%8%14%12%11%11%13%12%13%13%13%15%74%74%75%77%74%76%74%73%72%70%0%10%20%30%40%50%60%70%80%90%100%20202019201820172016201520142013201220110% - 50%50% - 60%60% - 70%70% - 80%80% - 90%90% - 100%Level of Support - All Companies

Only 2.2% of companies failed to receive majority support for Say on Pay votes in 2020. The number of companies that have failed the Say on Pay vote has also been very consistent over the 10-year period, with an average of 2.0% of companies failing over the past 10 years. For companies that failed in 2020, the median level of support was approximately 38%, mirroring historical results.

All Companies – Failed Say on Pay Vote


2011 – 2020



% of Companies Failing



1.4% – 2.4%

Median Level of Support



33.1% – 42.7%

Proxy Advisor Impact

Proxy advisors have a substantial impact on the Say on Pay vote for companies. The most influential proxy advisory firm is Institutional Shareholder Services (“ISS”) which grades companies on a pay-for-performance scale to determine if, in their view, CEO pay and company performance are well-aligned. ISS will then issue a recommendation “For” or “Against” the NEO compensation program, ISS’ vote recommendation often has a substantial impact on the vote result, as outlined below.

The two main inputs that ISS looks at are CEO compensation and Total Shareholder Return compared to an ISS-defined peer group based on company size and industry. Companies will then receive a “Low”, “Medium” or “High” concern level that determines whether ISS performs a qualitative evaluation of the compensation program. The overall concern level drives ISS’ ultimate recommendation For or Against the Say on Pay resolution. Historically, approximately 95% of companies with a Low concern receive support from ISS, compared to about two-thirds of companies rated Medium concern and roughly half of the High concern companies. Often, shareholders will reference the ISS recommendation (i.e., For or Against) when casting their vote on Say on Pay; however, many institutional investors have their own proprietary tests to evaluate compensation programs at companies.

ISS has consistently recommended Against Say on Pay for approximately 12% of companies per year, over the last decade. Among companies that have failed Say on Pay, the vast majority, 96% on average, have received an Against recommendation from ISS. In 2020, roughly 20% of companies that received an ISS Against recommendation ultimately failed the vote and for all companies with an Against recommendation from ISS, the median level of support was only 67%.

ISS Against Recommendation Impact


2011 – 2020



% of Companies with ISS Against Recommendation



10.0% – 13.5%

% of Companies with ISS Against Recommendation Failing Say on Pay



10.6% – 21.5%

Median Level of Support



65.1% – 70.4%

As shown below, the percentage of companies with an ISS Against recommendation, at each support level range, has been generally consistent since the Say on Pay vote was established.

20%19%18%11%14%23%17%17%18%13%15%16%17%12%19%15%15%18%23%16%25%26%26%26%24%23%22%22%16%21%21%24%23%24%20%20%21%22%23%23%12%10%10%17%16%14%16%13%11%17%8%6%7%10%7%5%10%8%8%10%0%10%20%30%40%50%60%70%80%90%100%20202019201820172016201520142013201220110% - 50%50% - 60%60% - 70%70% - 80%80% - 90%90% - 100%Level of Support - Companies Receiving an ISS Against Recommendation

Expectations for 2021

Institutional Shareholder and Proxy Advisor Commentary

2021 proxy statement disclosures will reflect the impact of COVID-19 on company performance which influenced both executive compensation in 2020 and the development of 2021 incentive programs. While the degree of impact will vary by industry and company, many more companies than usual will disclose adjustments to their compensation programs than in past years. During 2020, shareholders and proxy advisors provided some general guidance on how they will be assessing and evaluating these unique circumstances.

Institutional shareholders and proxy advisors have both stated that they recognize that 2020 was a more challenging year than most due to the impact of COVID-19. Because of this, they will review companies on a case-by-case basis, evaluating the facts and circumstances that went into any adjustments that were made. Guidance has generally encouraged proactive, enhanced disclosure that clearly explains the situation and rationale for COVID-related changes as opposed to generic descriptions of a challenging year, which may be viewed as insufficient.

How shareholders and proxy advisors interpret and assess the COVID-related disclosures and adjustments will ultimately influence Say on Pay votes and recommendations. While ISS and Glass Lewis did not make wholesale changes to their pay-for-performance evaluations for 2021, ISS did call out key disclosure items that would help investors evaluate COVID-related changes. This indicates that there may be more discretion and flexibility applied for companies with more robust disclosure. Even with greater flexibility in the qualitative evaluations, pay-for-performance misalignment will continue to be the main driver for Against recommendations from ISS in the broader market.

CAP Expectations

Since pay-for-performance is expected to remain the primary driver for proxy advisor recommendations, Say on Pay results will continue to depend on the magnitude of pay, pay practices and stock price performance. For companies that may have a pay and performance misalignment, we expect reduced shareholder support if a company has not provided sufficient rationale for the following actions:

  • Annual and long-term incentive plan adjustments
  • Major employee actions (e.g., layoffs)
  • Performance that is dramatically below investor expectations
  • Low relative financial performance
  • Above-target discretionary adjustments to payouts that previously missed threshold performance
  • Awarding one-time special cash/equity grants

Shareholder outreach will be more important in 2021 as companies can use these discussions to supplement their required disclosures. Proactive outreach may help to prevent a significant impact on the Say on Pay result even if proxy advisors recommend Against a company’s compensation program. There will also likely be more disclosure on go-forward incentive programs, as the impact of COVID-19 lingers into 2021.

Say on Pay results in 2021 will likely depart from prior norms. Even if the percentages of Against recommendations and companies passing remains relatively consistent with historic levels, we expect to see a downward shift in the median level of support and in the percentage of companies receiving at least 90% support. For companies that do receive an Against recommendation from proxy advisors, the level of support may decline compared to historic norms if disclosures do not sufficiently justify the actions taken.


2021 Say on Pay results will likely test the “steady state” seen over the previous 10 years. While the full picture will not be clear until later this year, CAP has begun to look at companies with fiscal years ended in late 2020 to get an early read. We will continue to monitor Say on Pay results throughout the year to see how the COVID-19 pandemic shapes these results.

On November 13, 2019, Institutional Shareholder Services (ISS) made two key changes to its Quantitative Pay-for-Performance Screens for 2020.

    1. ISS changed the Financial Performance Assessment (FPA) to be based on Economic Value Added (EVA) metrics (EVA Margin, EVA Spread, EVA Momentum vs. Sales, EVA Momentum vs. Capital) instead of the GAAP metrics that were used in 2019. The FPA will continue to be used as a secondary modifier screen affecting a relatively small number of companies.

      ISS will continue to include the GAAP metrics in the report. Though they will not be used in the quantitative assessment, they may be included in the overall ISS evaluation of pay and performance alignment.

      We expect that many companies will engage with ISS to determine their performance on the EVA metrics, given the complexity in replicating the EVA metrics from GAAP financial information.


  1. ISS made changes to the thresholds that will trigger concern for the Relative Degree of Alignment (RDA) and the Pay-TSR Alignment (PTA) tests.


Measure Policy Year Eligible for FPA Adjustment Medium Concern High Concern
Relative Degree of Alignment 2019 -28 -40 -50
Relative Degree of Alignment 2020 -38 -50 -60
Pay-TSR Alignment 2019 -13% -20% -35%
Pay-TSR Alignment 2020 -22% -30% -45%

These changes will be welcomed by issuers as they lower the likelihood of ISS undertaking a qualitative review of a company’s pay program that may trigger an against recommendation from ISS on the Say-on-Pay vote.

CAP partners Bertha Masuda and Susan Schroeder discuss essential components to building robust long term and short term incentive plans as well as what companies overlook when developing incentive plans for their employees