Say-on-pay votes can't force change, but they can send a powerful message. Case in point: Bank of the Ozarks (OZRK) in Little Rock, Ark.

The $5 billion-asset company said last week that it would change how it awards bonuses, after the approval rate of its annual vote on executive pay fell to 64% from 96% a year earlier. While the nonbinding measure passed, the tally was low enough to prompt the company to make changes to align its policies with the preferences of proxy-advisory firms.

Bank of the Ozarks said in a regulatory filing that it will "restructure portions of the equity and cash components of its executive compensation program to place greater focus on pre-established performance targets which are intended to reward long-term shareholder value creation." The change will apply to the second half of this year.

Bank of the Ozarks declined to comment on the change.

The low approval rate is somewhat surprising, some industry experts say, because Bank of the Ozarks has been one of the top-performing community banks in recent years, enjoying a 160% rise in its stock price since 2011.

"Their performance has been nothing short of first-rate throughout the entire cycle," says Brian Martin, an analyst at FIG Partners. "The CEO runs an excellent bank, and these guys are among the elite."

The result underscores why banks — even the most successful ones — must understand what proxy firms want and structure their pay packages accordingly, industry experts say.

"A lot of the vote is not about whether you're performing well, but whether you're following the rules of your shareholders and advisory firms," says Alan Johnson of executive-compensation firm Johnson Associates. "You may think the rules are silly or counter-productive, but at a small or medium-sized institution, proxy firms can carry a lot of the vote."

All banks that accepted Troubled Asset Relief Program funds must hold annual shareholder votes on executive compensation. While these votes are nonbinding, bank executives are usually reluctant to flout their investors' disfavor or risk public embarrassment by losing a vote.

A failed vote can sometimes lead to worse consequences than a few weeks of bad press, as former Citigroup (NYSE: C) Chief Executive Vikram Pandit learned the hard way. Pandit was ousted shortly after Citi's shareholders rejected his $15 million pay package for 2011.

"Companies in general are very responsive to say-on-pay votes, but banks are extremely responsive," Johnson says. "If a decent-sized bank sees its vote decline significantly, you could see the federal government get involved."

This year's proxy season revealed that say on pay can be treacherous even for top performers. This year, shareholders rejected the pay packages of New York Community Bancorp (NYCB), TCF Financial (TCB) and ViewPoint Financial (VPFG), all of which have rewarded their investors with strong returns in the past year. New York Community's stock has risen by 17% in the last 12 months, TCF's by 18% and ViewPoint's by 37%.

In several instances, proxy-advisory firms flagged specific problems in the banks' pay practices. New York Community was cited for excessive tax gross-ups, which are payments to executives that offset tax charges for stock grants. New York Community CEO Joe Ficalora says the vote failed because proxy firm Institutional Shareholder Services issued a recommendation against the vote. "People voted against it based on a recommendation by a single party, but we're going to work toward making sure that everyone understands that there is nothing disproportionate and unusual in what we are doing," he says.

TCF was faulted for repeatedly failing to engage with investor concerns — a big red flag for proxy advisors, according to Todd Sirras, managing director of pay consultancy Semler Brossy."For companies that have received criticism in past years, shareholder engagement is critical," Sirras says. "The most important thing is that the company is listening to shareholders on executive pay."

Change can take place even if shareholders approve a pay package, industry experts say. If approval for a pay plan slips below 70%, banks would be well advised to follow Bank of the Ozarks' path of taking preemptive steps to smooth matters over with shareholders.

"You don't want to be in a position where you're surprised by a low vote and are trying to figure out what the shareholders want," says Susan O'Donnell, a partner at Meridian Compensation Partners. "It's better to be proactive and change before it becomes a problem."

Most banks sail through say-on-pay votes. Just 2% of all Russell 3000 companies failed their pay proposals this year, and more than three-quarters passed with 90% approval or higher, according to a study by Meridian. It's rare for more than two or three banks to see their pay packages voted down in a proxy season, O'Donnell says.

The fact that some of the industry's more successful banks failed their pay votes underscores that such votes are a "blunt instrument" for assessing a bank's management, Sirras says. "Corporate performance and the say-on-pay vote are not highly correlated. The say-on-pay vote is not highly correlated to any financial metric, in fact," he says.

Still, it remains a key piece of banks' corporate governance, and one that bankers ignore at their own risk.

"The vote may be nonbinding, but it's still your shareholders expressing their opinion, and the whole governance model hinges on companies' shareholders expressing their opinions," Sirras says.

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