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

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

“A vote AGAINST this proposal is warranted,” ISS concluded. “CEO pay has remained significantly higher than the peer group median over the previous three years and continues to lack performance-based elements in either the annual or equity incentive plan. Consecutive years of substantial base salary increases have further ratcheted the non performance-based elements upwards. The year-over-year increase in total CEO pay may manifest some alignment with stock price improvements, but shareholders should be concerned that the CEO’s equity awards continue to be entirely time-based, lacking a rigorous link to key performance drivers beyond stock price influences.”

There is tension between compensation consultants and proxy advisers, especially since say-on-pay votes became a routine part of each proxy season. Advising big investors to adopt its views on executive compensation has been part of what Sorrentino has described as “mission creep” by ISS.

What ISS Likes

ISS has clear preferences for executive compensation strategies, as Bank of the Ozarks found out, and Sorrentino said those preferences tend to be rigid regardless of the company or its particular situation.

“We don’t see the world quite as black and white,” Sorrentino said of his company, Stephen Hall & Partners. “You want to be able to have some flexibility.”

Sorrentino described the ISS philosophy on executive pay as both quantitative — how much executives are paid — and qualitative — how that compensation figure is determined.

Quantitatively, ISS compares executive compensation to that of peer companies and to the returns that investors have enjoyed. Qualitatively, ISS and other proxy advisers prefer performance-based compensation like stock awards that vest when certain financial goals are reached rather than after a certain amount of time.

Almost needless to say, the proxy advisers don’t like things like “golden parachute” severance packages that are sometimes described as “pay to fail,” Sorrentino said.

Reputational Risk

Through spokeswoman Susan Blair, Bank of the Ozarks declined to make any comment on the compensation change other than what was included in its SEC filing. But Sorrentino said it’s not surprising that the company’s compensation committee would respond promptly to a say-on-pay vote result like BOZ’s.

“The challenge has been in many cases [ISS has] taken the role of determining the quote-unquote best practices, and many companies follow those practices … because they want to get a positive vote from ISS,” Sorrentino said.

Bank of the Ozarks has been expanding — the recent acquisitions of Omnibank of Houston and Summit Bank of Arkadelphia have pushed its assets to $6.3 billion. Bigger companies have more to lose if they don’t respond to the votes of their institutional investors.

“There’s a whole lot of reputational risk, and the directors are working a whole lot harder than they ever have,” Sorrentino said. “It’s not the country club job that everyone thought it used to be.”

 

 

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