More Say on Pay : What Will It Mean?


Executive compensation, increased communication and transparency for shareholders are among the hot-button issues in economic reform. Momentum in the public arena, on Capitol Hill and among shareholder activists, is swinging toward allowing shareholders more access to matters of compensation. This proxy season, at least three US companies have seen a majority of their shareholders vote against their compensation plans. Further, proposals to hold such votes are receiving more support this year than in all previous years. The mainstream media has picked up on this trend as it has become evident that the landscape for Say on Pay is changing and that shareholders are looking at executive compensation with increasing scrutiny. Say on Pay is here to stay; the question now is how best to deal with this new reality. How does a company prepare for this new and uncharted environment?

What is Say on Pay?

An advisory vote on executive compensation, or Say on Pay, is a nonbinding proposal included in a company’s proxy materials that calls for an annual shareholder advisory vote on a company’s executive compensation program. Such a vote would permit a company’s shareholders to give the company an annual thumbs-up or thumbs-down vote on its executive compensation program.

What is the history of Say on Pay?

The recent push to require companies to give shareholders an advisory vote on executive compensation is the result of the relative success of a similar movement in the United Kingdom, Australia, the Netherlands, Norway and Sweden. The advisory vote initiative originated in the United Kingdom and became a required corporate governance practice for all companies listed on the London Stock Exchange, beginning in 2003.

A concerted effort by activist shareholders and certain large institutional investors brought the issue to the forefront in the United States. In 2006, several activist shareholders and institutional investors began to pressure certain public companies to include a Say on Pay proposal in their respective proxy statements. Proposals to require an annual Say on Pay vote were adopted by shareholders at five publicly traded companies that year, expanding to more than 50 in 2007, more than 80 in 2008, and exceeding 100 in 2009. In January 2009, the American Federation of State, County and Municipal Employees (AFSCME) and Walden Asset Management (Walden) announced that they were leading a coalition of more than 70 institutional and individual investors in an effort to file Say on Pay proposals with more than 100 companies.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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