UPDATE: June 23, 2021: For Tuesday's annual shareholder meeting, a majority of Mastercard shareholders cast votes in support of the card company's approach to executive compensation last year.

Specifically, about three-quarters of the approximately 815 million Mastercard shares cast were in favor of an executive compensation advisory proposal, while about a quarter were against it (less than one percent abstained), according to a Mastercard filing Wednesday with the Securities and Exchange Commission. 

"We're pleased to have received their support and recognition of the efforts of our teams in delivering value to our stockholders, customers and partners," said Mastercard spokesman Seth Eisen.

Nonetheless, opposition to that compensation proposal was substantially higher than the percentage of votes against any other proposal on the proxy. Eisen didn't have any comment on the opposition.

Dive Brief:

• Former Mastercard CEO Ajay Banga’s $27 million-plus pay package, and compensation for other executives at the card network company, have drawn criticism from the research firm Institutional Shareholder Services. ISS, which advises institutional shareholders, recommends a vote against the Mastercard executive compensation proposal at the company’s annual meeting next week.
• Banga relinquished his role as Mastercard’s CEO this year on Jan. 1, but remains at the company as its executive chairman. Michael Miebach, previously the company's president, became CEO. The vote on executive pay at the June 22 annual meeting is a non-binding shareholder referendum on pay policies.
• Shareholder support for the executive compensation proposal “is not warranted,” largely because of Mastercard's goal adjustments related to the COVID-19 pandemic, ISS said in its June 7 report on Mastercard’s proxy proposals. “Half of the annual incentive payout continues to be based on a subjective assessment of individual performance and there are significant concerns regarding COVID-related compensation adjustments.”

Dive Insight:

The Purchase, New York-based card giant laid out its 2020 compensation for Banga and other top executives in its April 29 proxy filing with the Securities and Exchange Commission. Banga’s $27.77 million compensation was the highest among Mastercard executives and included a $1.25 million salary, $19.66 million in stock awards, $3.53 million in stock option awards, $3.13 million in incentive pay and $210,000 in other pay, according to the SEC filing. The total was 19% more than the $23.25 million he earned in 2019, the filing showed.

ISS, which has for years reviewed corporate proxy statements, approved of Mastercard’s other proposals, but not the compensation proposal. It took issue with executive performance goals being adjusted due to COVID and thereby becoming easier for executives to achieve. In two categories, the adjustments led to payouts that otherwise wouldn’t have happened, ISS said.

ISS particularly cited adjustments to performance metrics related to periods that preceded the pandemic. “Although some investors have expressed a degree of flexibility regarding adjustments to short-term awards, adjustments to (2018) closing-cycle equity awards are not viewed as an appropriate reaction to COVID-related disruptions,” ISS said in its report.

In a Mastercard proxy amendment filed with the SEC last week, the company acknowledged ISS’s opposition and countered it, arguing that “COVID-19 created unprecedented circumstances which rendered our pre-established performance goals obsolete based on business factors outside of management’s control,” specifically a decline in consumer spending and cross-border travel. 

The company also noted in the June 10 amended filing its board human resources and compensation committee reviewed the unique 2020 situation and determined that compensation was aligned with the company’s “strong” total stockholder return; allowed Mastercard to retain employees during COVID and the CEO transition “amid a competitive market for talent;” and ensured employees were motivated in a “critical period of significant change.” 

A Mastercard spokesperson, Seth Eisen, declined to comment beyond the filing but pointed to its concluding remarks, including this: "COVID-19 created unprecedented circumstances, and our employees rose to the challenge. They delivered strong results while managing the pandemic. Our (total stockholder return) remained strong as well. The (board human resources and compensation committee) believed these factors warranted a holistic adjustment to reflect our employees’ tremendous efforts."

Mastercard’s 2020 annual revenue declined 9.4% to $15.3 billion, compared with 2019, and its net income slid 21% to $6.4 billion.

Like other companies, Mastercard puts the “say-on-pay” proposal, regarding last year’s executive compensation, to a shareholder vote at the annual meeting as a way to let public market stakeholders endorse or reject the company’s approach to compensation. The company said in the proxy that it asks for “advisory approval” of the already-paid compensation because it shows whether its compensation “philosophy, policies and practices” align with shareholders’ views.

The SEC began requiring say-on-pay proposals in 2011 to implement the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act prompted by the 2008 financial crisis. The new rule followed protests over exorbitant executive pay unaligned to company performance. 

The issue remains controversial, with ongoing protests this proxy season, particularly with respect to companies that adjusted their goal lines due to COVID. At least 13 Standard & Poor’s 500 Index companies so far this year have failed to persuade even half their public shareholders to vote in favor of their compensation proposals, according to a Financial Times report, which cited ISS for the tally. 

ISS estimated Banga’s 2020 compensation at a higher level than the company did, saying it was $29.45 million. That was 1.75 times higher than the $16.81 million average for CEOs in an ISS peer group, and was also 1.51 times higher than the company’s peer median, ISS said. ISS also noted Banga’s pay was 210 times more than the $132,114 earned by the average Mastercard employee.

Companies routinely base executive pay on compensation earned by executives at peer companies, but averages vary depending on which comparable companies are included. ISS noted that its peer group for determining appropriate pay levels at Mastercard had some overlap with the company’s group, but also included some companies Mastercard didn’t and left out some the company included.

With respect to such votes at Mastercard's U.S. card rivals, including Visa, Discover Financial and American Express, ISS recommended shareholders support their say-on-pay proposals.