At its Feb. 2 annual meeting, Beazer Homes USA received 53.7 percent opposition to its executive compensation practices amid apparent investor concerns over pay for performance. 

The Atlanta-based homebuilder’s pay practices were opposed by investors holding 23.6 million shares, as compared with the 20.2 million shares that supported the management during the non-binding advisory vote. Beazer, a Russell 3000 firm, is the second U.S. issuer this year (and fifth overall) to fail to win majority approval for its compensation practices. Jacobs Engineering Group received similar dissent over pay at its Jan. 27 meeting.   

At Beazer, the Dodd-Frank Act’s ban on discretionary broker votes on compensation agenda items may have been decisive, as there were 19.2 million broker votes that were not included in the vote tallies. During the 2010 spring proxy season, brokers were allowed to use their discretion to cast uninstructed client shares during “say on pay” votes. While some brokers have adopted “mirror voting” and other methods to vote these shares, broker votes historically have been cast in favor of management.  

In its Form 8-K filing yesterday, Beazer did not immediately disclose how it might respond to the vote. The company has faced shareholder opposition over pay in the past. At both the 2010 and 2009 annual meetings, two compensation committee members received more than 20 percent opposition. However, the dissent against the two directors fell to about 11 percent this year, as many investors opted instead to use the advisory vote to voice their pay concerns. 

This year’s vote against Beazer’s pay practices appears to reflect concern over the homebuilder’s lagging stock performance and the increased compensation for its long-serving CEO, Ian McCarthy. Beazer has posted a negative 26 percent share return over the past year, and a negative 20 percent return over three years, which both trail the company’s industry peers. However, the CEO’s total direct compensation increased by 350 percent to $6.3 million in the past year after he received a significant cash bonus and equity awards. McCarthy did not get any cash bonus the previous year and had not received any equity awards since 2006. Over the past several years, the company had been unable to grant equity awards due to a criminal and civil investigation by the U.S. Justice Department and the low number of shares that remained available under the company’s 1999 equity plan. Shareholders approved a new equity plan at the 2010 annual meeting, which has permitted Beazer to resume equity grants.  In determining the grants for McCarthy, the company’s compensation committee said it considered the long-term equity award practices of the company's peers and companies in other industries. The committee also said it wanted to recognize the CEO’s role in leading the company through difficult financial, market, and legal issues. 

Also at Beazer’s annual meeting, investors overwhelmingly backed management’s recommendation to hold future advisory votes on an annual basis.