U.S. Say on Pay Votes for Shareholders 

  • 2019.02.06  Say on Pay Reminder: Excise the Irritants.  There is a subtlety within the following quote from an empirical study about how companies react to negative say on pay. While the problem comes from pay-for-performance (P4P) disconnects, the solution does not seem to involve reducing the compensation, but instead avoiding irritants such as unjustified tax gross-ups and other indicators of loose governance. Having noted that, it is worth circling back to P4P, because the smartest companies are keen to making a strong P4P case at the start of their CD&As, as well as in any introductory summary for shareholders.
    • [Quoting from Harvard Law's Governance Blog] "... with respect to its effect on executive pay, the adoption of Say on Pay and adverse Say on Pay votes are followed by an increase in pay-for-performance sensitivity, while pay levels do not seem to be much affected. Firms often directly respond to adverse votes by engaging with institutional investors and changing compensation contracts to remove those controversial provisions that caused the adverse vote."
  • 2018.09.25  CalPERS, Executive Compensation, and ... Elizabeth Taylor!  These three may seem like strange bedfellows, but the nexus comes from this truism about executive compensation: shareholder outrage erupts in down markets, and evaporates during booms. Witness for example the efforts of CalPERS to awaken some pay-for-performance alignment. For the years 2011 through 2017, CalPERS is reported to have voted "no" for say-on-pay about 16% of the time. In 2018, that "no" vote percentage leapt to 43% with CalPERS explaining that this was primarily due to a misalignment between executive pay and corporate performance.  Meanwhile, the "up" market has found 95% shareholder support for companies with "for" recommendations, and 73% for companies passing with an “against” recommendation (per a 12/2017 FW Cook report).  All of this brings to mind Elizabeth Taylor's quote: "there is no deodorant like success."  As year-end 2018 approaches, the best boards will heed the call to better align pay-to-performance.  Otherwise, they will be vulnerable when a stall in the stock market makes their executive compensation plans fail the smell test.

Applicable Law 

  • Section 14A(a)(1) of the Exchange Act (Section 951 of the Dodd-Frank Act).
  • SEC Final Say on Pay Rules (aka Rule 14a-21)- for Say on Pay (released 1/25/2011; published in the Federal Register 2011.Feb.2).
  • SEC Press Release re final rules.
  • CD&Is by SEC re Say on Pay - released 2/11/2011.
  • 2012.Feb.14  SEC re Say on Pay Proposal Text for Voting Cards and Instructions.  The SEC has issued guidance about how proxy cards and voting instructions should describe the say-on-pay vote. The top four bullets provide examples of approved language, and the bullet in the last line illustrates an inadequate description (because of its ambiguity).   See CD&I 169.07. 

Topics relating to Say on Pay

Voting Results on Say on Pay