Hunton Retail Law Resource

As media outlets recently highlighted Equal Pay Day on April 4, 2017, publicly held retailers should be aware that the focus on pay equity is becoming increasingly popular among activist shareholders. This proxy season, more than 20 publicly traded companies are facing shareholder proposals at their annual meetings to vote on whether they should research and report on pay gaps by gender and race.

Campaigns for pay equity disclosure began making an appearance in 2014, as a result of efforts by investors such as Arjuna Capital, and they have continued to gain steam ever since. In 2016, of the 18 companies that disclosed pay gap information, more than two-thirds did so in response to shareholder proposals. Of the 18 companies, 28 percent also disclosed pay gaps based on race or ethnicity. Companies in a variety of industries have been the target of such proposals, including retailers such as Starbucks.

Responses to such proposals have varied greatly, with some companies being receptive to such disclosure but many being resistant to provide such information. Some companies whose disclosure have revealed disparities have been left to defend their pay practices and other internal diversity initiatives. Some companies who have sought to exclude pay equity proposals from their proxy materials, such as Colgate-Palmolive Company, have failed to obtain no-action letters from the SEC permitting them to do so. However, in other instances, after having discussions with companies about these issues, some investors have withdrawn their proposals.

Given the increased focus on this area, publicly held retailers should be prepared for shareholder activism related to pay equity and determine in advance what approach to take if faced with such proposals. Additionally, companies who ultimately decide to disclose such information should consider which compensation metrics they will use, whether they will disclose pay gap information based on gender, race or both, and what explanations they will provide regarding any gaps that may exist. As always, developing strategies to meaningfully engage with investors on this and other issues that are making their way into proxy statements can allow companies to avoid being caught off guard.