Reconsidering “Say on Pay” Proposals

Daniel Summerfield and I recently presented a paper to the Shareholder Forum Program on Reconsidering “Say on Pay” Proposals, held recently at the Columbia School of Journalism. We address arguments put forth by opponents of shareholder “Say on Pay”. The paper cites benefits produced by Say on Pay in Britain and analyzes points where debate in the United States has been framed in ways that obscure many Say on Pay benefits. Points include:

• Recognition that success of Say on Pay in other markets cannot be evaluated over a short time frame and must acknowledge the ongoing cross-border effect of executive compensation practices in the United States;

• While Say on Pay gives shareholders more influence, its most important effect is empowerment of directors;

• Say on Pay fosters improved communication between shareholders and boards, creating opportunities for both to increase their understanding of market sentiment and enhance their respective roles in corporate governance;

• Advisory votes on compensation practices would allow shareholders to send a message to boards without throwing qualified directors off the board at companies where a majority vote standard has been adopted for director elections;

• Say on Pay encourages boards to focus greater attention on succession planning, which has been a dangerously low priority for many boards;

• Both excessive executive compensation and pay without performance present risks to shareholders that Say on Pay could legitimately address.

The paper is available here.