Say-on-Pay Opposition: The Response Playbook (2026)

Say-on-Pay Vote Shareholder Opposition: The Response Playbook (2026)

Your say-on-pay vote just closed, and the number is worse than expected. Whether you landed at 74% or 48%, the next six months will determine whether this is a one-year blip or the start of a governance crisis. This guide walks through exactly what to do, in what order, and where companies go wrong.

Key takeaway: All 14 Fortune 1000 companies that received adverse say-on-pay votes in the 2024-2025 proxy season and ran structured engagement programs saw improved results at their 2026 AGM, with gains ranging from 3.9 to 66.1 percentage points. Engagement works. Silence does not.

What Counts as a Failed or Adverse Say-on-Pay Vote?

The answer depends on which proxy advisor is watching, and the thresholds are not the same. Under SEC rules implementing Section 951 of the Dodd-Frank Act, a say-on-pay (SOP) vote is legally non-binding regardless of the outcome. A vote below 50% is a formal failure, but the practical consequences start well before that.

Here is how the two dominant proxy advisors draw the lines:

The gap between these thresholds matters operationally. A company at 75% support faces ISS scrutiny but not a Glass Lewis flag. That changes the calibration of your response. You need to understand which proxy advisor drove the opposition before designing the fix.

As Pearl Meyer puts it: "Even when say-on-pay passes, any vote result below 80% is increasingly seen as cause for concern. Proxy advisors and shareholders alike expect a clear, thoughtful response."

The SOP vote covers the CEO, CFO, and at least three other named executive officers (NEOs), as disclosed under S-K Item 402, including the Compensation Discussion and Analysis, compensation tables, and narrative disclosures.

Are You Legally Required to Respond?

No, but the practical enforcement mechanism is real. The vote is advisory and non-binding. The SEC does not mandate any specific post-vote action. What it does mandate is that SOP votes occur at least once every three years, and frequency votes at least once every six years.

The enforcement comes from ISS, Glass Lewis, and large institutional investors. As the DragonGC 2026 annual report notes: "These adverse outcomes are typically driven by an adverse voting recommendation from one or more of ISS, Glass Lewis and large institutional investors for violating their voting policies for executive compensation. While SEC rules only require a non-binding advisory vote, in practice these entities provide an enforcement mechanism."

Fail to respond adequately, and the following year's proxy advisor recommendation will likely be worse. ISS and Glass Lewis can also recommend votes against compensation committee members if they deem the response to a prior adverse SOP vote inadequate. That escalation pathway turns a pay vote problem into a director election problem.

Step 1: Diagnose Before You Act

The single most common mistake is designing a response before understanding what actually drove the vote. Otis Worldwide's experience illustrates this precisely: after its adverse vote, engagement revealed that the principal concern was the 2024 off-cycle awards. Investors did not express material concerns about the annual PSU program. A company that assumed broad dissatisfaction would have overhauled the wrong things.

Start with these diagnostic questions:

• Who voted against? Pull the vote analytics. Which institutional investors voted against, and which followed ISS or Glass Lewis recommendations versus reaching their own view?
• What did the proxy advisors object to? Review the ISS and Glass Lewis reports in detail. Identify the specific practices flagged, not just the summary recommendation.
• Was this a one-time trigger or a structural issue? A special sign-on award or CEO transition grant reads differently than persistent pay-for-performance misalignment.
• Is this a disclosure problem or a design problem? Sometimes the program is defensible but the CD&A failed to explain it. Fixing the wrong layer wastes a proxy cycle.

Common root causes, per Pearl Meyer:

1. Pay-for-performance misalignment: pay outcomes inconsistent with company performance, or target compensation significantly above peer benchmarks without clear rationale
2. Problematic pay practices: discretionary bonuses, excessive perquisites, significant one-time equity grants
3. Adverse proxy advisor recommendations from ISS and/or Glass Lewis

Step 2: Assemble the Right Engagement Team

Who is in the room matters as much as what you say. The recommended engagement team is the compensation committee chair, the CHRO, and the head of investor relations. Each plays a distinct role:

• The compensation committee chair speaks to philosophy and strategic alignment. Institutional investors want to hear from the director who made the decisions, not just management.
• The CHRO provides program-level expertise and can answer technical questions about plan design.
• The head of IR manages the communication flow and ensures consistency across meetings.

Independent director involvement is no longer optional for larger companies. UnitedHealth Group had independent directors participate in every shareholder discussion. GE Aerospace's independent directors directly engaged with holders representing approximately 29% of outstanding shares. PENN Entertainment's independent board members attended 100% of engagement meetings with the company's top 30 holders.

Before the first meeting, brief the full board. They need to understand the intensity of the process and the reason for it. A board that is caught off-guard by the engagement scope creates its own governance signal.

Step 3: Build a Targeted Outreach Plan

The coverage threshold that proxy advisors and institutional investors treat as meaningful is at least 50% of the shareholder vote. This is not a soft guideline. Falling short of it will be noticed in the next proxy advisor review.

How leading companies structured their outreach in 2025-2026:

Prioritize shareholders who voted against or abstained. Reach out to those who followed ISS or Glass Lewis recommendations separately from those who reached their own view. The conversation with a quantitatively driven asset manager differs from the one with a stewardship team that evaluates programs case by case.

Keep prepared materials brief. Cover the background, the evolution of the compensation program, and what you heard in prior engagements. Then stop and listen. Pearl Meyer is explicit: "Some investors may prefer a free-flowing discussion" over a formal presentation. If you are doing all the talking, you are not learning anything.

Proxy Advisors vs. Large Asset Managers: Not the Same Conversation

A critical gap in most response playbooks is treating ISS and Glass Lewis recommendations as equivalent to institutional investor views. They are not. BlackRock, Vanguard, State Street, and Fidelity each maintain their own proxy voting policies and stewardship frameworks. These institutions sometimes diverge significantly from proxy advisor recommendations.

Engaging them directly, through their stewardship teams rather than through standard IR channels, is increasingly decisive. A company that addresses ISS's objections but never speaks to the stewardship team at its largest shareholder is leaving the most important conversation off the table.

Structured vs. Reactive Engagement

The DragonGC data distinguishes two engagement models. Intel ran a year-round cycle: reviewing annual meeting results, conducting off-season outreach, incorporating feedback, and holding in-season discussions. Goldman Sachs began engagement before the 2025 Annual Meeting and continued afterward, ultimately conducting more than 120 meetings. Both treated engagement as a recurring governance function, not a post-vote fire drill.

The reactive model, where outreach begins only after an adverse vote, leaves less time to incorporate feedback before the next proxy is filed and signals to investors that engagement is performative rather than genuine.

Step 4: Decide What to Change and What to Defend

Not every critique deserves a program change. This is where compensation committees most often get the response wrong, in both directions.

Pearl Meyer is direct: "Taking the path of least resistance by reacting to every critique and adopting every requested change may seem like the easiest way to address shareholder and advisory firm concerns, but that approach can create bigger problems down the line. When a design feature is central to your strategy, for example the metrics in your incentive plans, holding your ground may require some intestinal fortitude."

A useful framework:

Change promptly (soft pitches):

• Hedging and pledging policies that are out of step with proxy advisor guidelines
• Share ownership guidelines that fall below advisory firm best practices
• Disclosure gaps where the program is defensible but the CD&A failed to explain it
• One-time award structures that triggered the vote and will not recur

Evaluate carefully (structural questions):

• Incentive plan metrics that are central to business strategy
• Peer group composition and benchmarking methodology
• Long-term incentive design and performance conditions

Defend with explanation (hold your ground):

• Design features where the committee has a clear strategic rationale and the data supports it
• Practices where proxy advisor guidelines do not fit the company's business model

When you decide not to change something, say so explicitly in the proxy. "We heard this feedback and chose not to implement the change because..." is a stronger governance signal than silence. Investors can respect a reasoned disagreement. They cannot respect being ignored.

Step 5: Disclose the Engagement Process in the CD&A

The engagement effort only counts if it appears in the proxy. This is where companies leave credit on the table. Proxy advisors and institutional investors read the CD&A specifically to assess whether the response was substantive or performative.

What to include in the CD&A engagement disclosure:

1. The scope of outreach: how many shareholders were contacted, what percentage of shares they represent, and how many meetings were held
2. Who participated: whether independent directors attended, and in what capacity
3. What you heard: the specific concerns shareholders raised, not a generic summary
4. What you changed: the specific program modifications made in response to feedback
5. What you did not change and why: an explicit explanation for design features you defended
6. The timeline: when engagement began and when it concluded relative to the proxy filing

Landstar System's approach illustrates the topic-specific model: its proxy disclosed engagement specifically around the CEO's sign-on equity award, vesting and performance conditions, the CEO transition process, short-term incentive plan design, and related compensation disclosures. That level of specificity signals genuine engagement, not a box-checking exercise.

The Timeline: Six to Nine Months Is Not Much Time

The window between an adverse vote and the next proxy filing is typically six to nine months. The sequence is tight:

1. Weeks 1-4 post-vote: Analyze vote results, pull proxy advisor reports, identify which shareholders voted against and why
2. Months 2-4: Conduct off-season shareholder engagement; compensation committee deliberates on program changes
3. Month 4-5: Compensation consultant reviews proposed changes; independence disclosure under S-K Item 407 is a governance signal in its own right
4. Month 5-6: CD&A drafting begins; engagement outcomes and program changes are documented
5. Month 6-9: Proxy filed; in-season engagement with shareholders who want pre-vote discussions

Companies that start engagement in month three instead of month one compress the feedback loop and risk filing a proxy before they have fully incorporated what they heard. Goldman Sachs began its engagement before the prior annual meeting, which is the model for companies with recurring concerns.

What Are the Realistic Odds of Recovery?

Strong, if you engage properly. The data from Pearl Meyer's analysis of 492 S&P 500 observations over 2015-2024 shows that nearly half of companies with sub-80% SOP support improved their vote by 20 percentage points or more the following year. Approximately 15% experienced further declines, likely those that were less deliberate in engagement or failed to clearly articulate their response.

The 2025-2026 Fortune 1000 data reinforces this. Only 14 companies received sub-80% support, down from 25 in 2024-2025 and 21 in 2023-2024. All 14 that had conducted engagement programs saw improved results, with gains ranging from 3.9 to 66.1 percentage points. The trend of fewer adverse votes likely reflects both improving pay-performance alignment and better proxy disclosure quality across large-cap companies, though the companies that do fall below the threshold face higher scrutiny precisely because adverse votes are now rarer.

Key takeaway: The 15% of companies that see further vote declines share a common profile: they either did not engage meaningfully, or they engaged but failed to disclose it clearly enough for proxy advisors to credit the effort.

The Failed Vote Scenario: Below 50%

A vote below 50% is a different situation from a weak vote, and it warrants a more urgent response protocol. The reputational and governance consequences are sharper:

• ISS and Glass Lewis are more likely to recommend votes against compensation committee members at the following annual meeting
• Institutional investor stewardship teams may escalate internally, triggering broader governance reviews
• Media and proxy monitoring services flag formal failures, which can affect director election campaigns at other portfolio companies

The response steps are the same, but the timeline compresses and the stakes for the CD&A disclosure are higher. A failed vote that is followed by a thin or generic engagement disclosure will almost certainly produce a repeat negative recommendation.

FAQ

What does a say-on-pay vote mean? A say-on-pay vote is a non-binding advisory shareholder vote on the compensation of a company's named executive officers, as disclosed under S-K Item 402. Required by Section 951 of the Dodd-Frank Act and implemented by SEC rules effective January 2011, it covers the CEO, CFO, and at least three other most highly compensated executives. The vote does not legally bind the board, but adverse outcomes carry significant practical consequences through proxy advisor recommendations and institutional investor stewardship policies.

What is the difference between ISS and Glass Lewis thresholds for say-on-pay? ISS flags companies with less than 70% say-on-pay support as requiring a demonstrable response. Glass Lewis uses a more stringent 80% threshold. A company in the 70-79% range faces ISS scrutiny but not a Glass Lewis flag, which changes the calibration of the response. Both advisors expect companies to demonstrate how they addressed shareholder concerns, and failure to do so typically results in escalating opposition the following year.

Do shareholders have the right to vote on dividends? In the U.S., shareholders of common stock generally do not have a statutory right to vote on dividend decisions. Dividend policy is a board-level decision. Say-on-pay votes are a separate, mandated advisory mechanism specific to executive compensation.

What are the three main factors that drive weak say-on-pay votes? Pay-for-performance misalignment (pay outcomes inconsistent with company results or target compensation above peer benchmarks without clear rationale), problematic pay practices (discretionary bonuses, excessive perquisites, significant one-time equity grants), and adverse proxy advisor recommendations from ISS and/or Glass Lewis. Most adverse votes involve at least two of these factors simultaneously.

Should we engage ISS and Glass Lewis directly? Yes. Both proxy advisors accept company engagement during the off-season. ISS in particular has a formal engagement process. Engaging them directly allows you to understand the specific objections in their models and to present context that may not be captured in the proxy. This does not guarantee a changed recommendation, but it reduces the risk of a repeat negative report based on a misunderstanding of the program.

How do we handle a weak vote if the cause was a one-time award that will not recur? Acknowledge it explicitly in the CD&A. Explain the business rationale for the award, confirm it was non-recurring, and describe any structural guardrails added to prevent similar situations. Proxy advisors and institutional investors can accept one-time awards with adequate explanation. What they cannot accept is silence or a generic defense.