Bank of the Ozarks Responds to 'Say on Pay' Vote

by Gwen Moritz  on Monday, Jul. 21, 2014 12:00 am  

In some ways, the “say on pay” requirement included in the Dodd-Frank Wall Street Reform Act of 2010 seems to be a routine exercise in rubberstamping.

Say-on-pay votes are not binding in the first place, and the vast majority pass — that is, stockholders representing a majority of outstanding shares vote to approve the executive compensation formulas presented by the compensation committee of the company’s board of directors.

As of June 25, when Semler Brossy Consulting Group of Los Angeles issued its most recent roundup of say-on-pay vote results, executive pay failed to get 50 percent approval in only 48 of 2,123 companies — 2.3 percent — and the average approval rate was 91 percent.

But say on pay is having an impact even for companies whose compensation packages get voter approval, and a perfect example is in Little Rock: Bank of the Ozarks Inc.

Last month, BOZ informed the Securities & Exchange Commission that it was making changes to the executive compensation program that had been approved at its May 19 annual shareholders meeting because the vote in favor had dropped from 97 percent and 96 percent in 2012 and 2013 to 64 percent this year.

BOZ executives and directors on the compensation committee blamed the dramatic drop in support to “the preferences of governance and proxy advisory firms for more performance based compensation.” That’s a dry way of saying that certain companies, one of them being Institutional Shareholder Services Inc. of New York, had encouraged their institutional investor clients to vote no on Bank of the Ozarks’ say-on-pay ballot item.

Starting with the current quarter, which began July 1, BOZ executives will have more of their compensation, both cash incentives and restricted stock awards, tied to the achievement of specific performance goals.

American Banker took note of BOZ’s response to the say-on-pay vote, particularly since “Bank of the Ozarks has been one of the top-performing community banks in recent years, enjoying a 160% rise in its stock price since 2011,” reporter Chris Cumming wrote.

But Joseph Sorrentino, a managing director with Stephen Hall & Partners, an executive compensation consulting firm in New York, said the issue is less about a particular company and more about “best practices” — and who decides what those are.

Proxy advisers issue proprietary recommendations on how clients — primarily institutional investors — should vote on proposals included in annual proxy reports. ISS, with more than 700 employees in 10 countries, is the 800-pound gorilla of the industry, and Bank of the Ozarks’ former pay package was among the 13 percent that it has recommended against during 2014, according to Semler Brossy’s research.

(The Wall Street Journal reported in May that another Arkansas company, Wal-Mart Stores Inc. of Bentonville, had been criticized by ISS for, among other things, “a string of adjustments to pay targets and plans that together have the effect of insulating executives’ pay somewhat from the consequences of Wal-Mart’s declining performance.”)

ISS declined to comment for this story, but it did share its proprietary report recommending a vote against Bank of the Ozarks’ executive compensation plan:



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