Joel Paula is a Research Director at FCLTGlobal. This post is based on his FCLTGlobal memorandum.
Proxy advisors are coming under pressure with accusations that their decision making is opaque, or pushing an “ESG” agenda. There’s no doubt that through their recommendations, they are hugely influential in voting outcomes. In an environment of increased scrutiny, backing voting recommendations with better data and evidence seems like a sound idea. Better yet, the proxy advisors could empower investors with better data, building a stronger case for voting decisions. Why not turn to technology solutions?
Artificial intelligence has already changed the way data is compiled and processed on a mass scale – and in particular in the investment industry, reshaping how professionals make decisions, manage portfolios, and analyze market data. A prominent challenge facing the industry today is the design of executive pay – specifically, structuring it in ways that incentivize strong performance over many years rather than just over a few fiscal quarters.
Proxy advisors’ analysis of executive pay packages for “say-on-pay” voting (the process where shareholders vote to approve or disapprove the compensation packages of a company’s top executives) considers factors like pay-for-performance alignment, the fairness of the package relative to peers, the structure of the compensation (e.g., short-term vs. long-term incentives), among others. The process is data intensive and can be laborious and time consuming.
