November/December 2008 / Governance
Selective “Say-On-Pay” the Best Remedy
The authors, who frequently represent institutional investors and shareholders, maintain that, “Say-on-Pay” provisions are not a panacea, but a limited version of the concept can be valuable as a check on what they see as explosive growth in executive pay over the past 25 years.
They note that resolutions urging that executive compensation plans be subject to non-binding shareholder vote have become a leading corporate governance agenda item. Pending legislation is addressing it and both presidential candidates endorsed the concept.
There are several problems with Say-on-Pay resolutions, in their view. Among them: They let directors avoid accountability, and they are constrained by the ability of companies to withhold meaningful detail, including executive performance benchmarks. Shareholders usually act only when a governance problem has become obvious, so “shareholder review of pay will generally take the form of closing the barn door after the horse is long gone.”
In the end, they advocate allowing shareholders to vote on pay, but without a mandate that such votes be held routinely. Instead, they say that a vote should occur only when requested by a “substantial shareholder.”
