Say on Pay 2012: Your Guide to Proxy Voting Season

Calling it the start of a revolution may be going too far, but the vote against Citigroup’s executive pay plan is widely expected to echo across annual meetings over the coming month.

So far this shareholders’ spring, majorities of investors have rejected compensation policies at Citi (NYSE:C) and, reportedly, FirstMerit (FMER) in advisory votes mandated by the Dodd-Frank Act. Just 58% of stockholders gave their assent at Bank of New York Mellon (BK) and only 71% approved at Hancock (HBHC).

Last year, just two banks — both with less than $15 billion of assets — out of a sample of more than 200 garnered less than 50% support, according to data from GMI Ratings. Fifteen banks, or about 7%, won less than 75%.

The ruptures at Citi, Bank of New York Mellon and FirstMerit were presaged by recommendations by major proxy advisory firms that investors vote against the pay resolutions.

That’s a bad omen for companies yet to hold their annual meetings, like Associated Banc-Corp (ASBC), where Institutional Shareholder Services and Glass Lewis have rendered negative verdicts this year.

Stockholders are not bound by the advice of governance watchdogs, just as companies are themselves not bound by the advisory votes, and it is difficult to interpret investor sentiment precisely.

“It’s not possible to know what the shareholder is thinking, or what they are voting against,” says Kent Hughes, managing director at Egan-Jones Ratings. “The criticism on say on pay is that it’s too broad and somewhat meaningless. The more general view is that it starts a conversation.”

For the Office of the New York City Comptroller, though, voting its roughly 8 million shares against Citi’s compensation package was an easy decision. “Pay was excessive relative to performance,” says Michael Garland, the office’s executive director for corporate governance. “It wasn’t a tough call, and the vote reflected that.”

There is precedent for a bank to recover from a shellacking in an advisory vote. Just 35% of shares voted at Umpqua’s annual meeting in 2011 gave their assent to the company’s pay package, while 95% were cast in favor this month. In response to the negative results last year, Umpqua (UMPQ) met with institutional shareholders and added performance conditions to equity grants, among other steps.

But investors are getting more comfortable using the platform granted to them by Dodd-Frank to voice dissatisfaction over compensation, Garland says. “There’s no question there’s going to be more majority votes against say on pay this year than the last.”