Skip to main content
MENU
Subscribe
  • Sign Up Free
  • LOGIN
  • Subscribe
  • Topics
    • Alternatives
    • Consultants
    • Coronavirus
    • Courts
    • Defined Contribution
    • ESG
    • ETFs
    • Face to Face
    • Hedge Funds
    • Industry Voices
    • Investing
    • Money Management
    • Opinion
    • Partner Content
    • Pension Funds
    • Private Equity
    • Real Estate
    • Russia-Ukraine War
    • SECURE 2.0
    • Special Reports
    • White Papers
  • Rankings & Awards
    • 1,000 Largest Retirement Plans
    • Top-Performing Managers
    • Largest Money Managers
    • DC Money Managers
    • DC Record Keepers
    • Largest Hedge Fund Managers
    • World's Largest Retirement Funds
    • Best Places to Work in Money Management
    • Excellence & Innovation Awards
    • WPS Innovation Awards
    • Eddy Awards
  • ETFs
    • Latest ETF News
    • Fund Screener
    • Education Center
    • Equities
    • Fixed Income
    • Commodities
    • Actively Managed
    • Alternatives
    • ESG Rated
  • ESG
    • Latest ESG News
    • The Institutional Investor’s Guide to ESG Investing
    • ESG Sustainability - Gaining Momentum
    • Climate Change: The Inescapable Opportunity
    • Impact Investing
    • 2022 ESG Investing Conference
    • ESG Rated ETFs
  • Defined Contribution
    • Latest DC News
    • DC Money Manager Rankings
    • DC Record Keeper Rankings
    • Innovations in DC
    • Trends in DC: Focus on Retirement Income
    • 2022 Defined Contribution East Conference
    • 2022 DC Investment Lineup Conference
  • Searches & Hires
    • Latest Searches & Hires News
    • Searches & Hires Database
    • RFPs
  • Performance Data
    • P&I Research Center
    • Earnings Tracker
    • Endowment Returns Tracker
    • Corporate Pension Contribution Tracker
    • Pension Fund Returns Tracker
    • Pension Risk Transfer Database
    • Future of Investments Research Series
    • Charts & Infographics
    • Polls
  • Careers
  • Events
    • View All Conferences
    • View All Webinars
    • 2023 Defined Contribution East
    • 2023 ESG Investing
Breadcrumb
  1. Home
  2. GOVERNANCE
February 06, 2012 12:00 AM

Unease with say on pay

  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print
    Roger Schillerstrom

    Because “say-on-pay” voting has not reined in executive compensation as much as some corporate governance reformers had hoped, the question becomes: Should more teeth be put into the shareholder vote, perhaps even making it binding?

    In the United Kingdom, the government of Prime Minister David Cameron has unveiled proposals to intervene and give shareholders more control over executive compensation.

    Vince Cable, the British Secretary of State for Business, Innovation and Skills, and president of the Board of Trade, outlined a series of remuneration proposals on Jan. 24, including one that would give shareholders binding votes on executive pay policies and severance payments worth more than one year's salary.

    Among the proposals, companies would have to get 75% of shareholder support for the pay and severance policies to pass. The formal proposals specifying the details are expected to be issued later this year for public comment.

    A call for such intervention could come to the United States in the future, just as the non-binding “say on pay” — initially adopted in a number of countries, including the United Kingdom in 2003 — was embraced in the U.S. market in the late 2000s by activist shareholders. It was mandated last year for all companies under authorization by the Dodd-Frank Wall Street Reform and Consumer Protection Act.

    Making “say-on-pay” binding is a bad idea.

    Majority votes overturning pay policies negotiated with senior management by the corporation's board could run up against issues of contract terms and law.

    Further, the binding vote might make shareholders reluctant to use their power, for fear of triggering unintended consequences. They might fear limiting the board's ability to design competitive pay packages that align executive compensation with shareholder interests, driving out competent, experienced top management, and generally causing corporate disruption.

    Setting pay should remain the responsibility of the board, although shareholders should, through their vote, encourage companies to engage in dialogue with shareholders to understand their concerns about executive pay.

    Indeed, some companies have been engaged in consulting with investors in advance of the vote to make constructive changes to the design of their pay packages and policies to make them more acceptable to shareholders in order to win a high percentage of votes.

    Corporations, for their part, have to recognize that concern about excessive or misaligned executive compensation resonates among shareholders as a corporate governance issue, and with the public, making it a political issue.

    Unless they bring pay policies into alignment with shareholder interests, corporate boards risk provoking reaction such as Mr. Cable's proposal. Corporations and shareholders should recognize they are better served keeping executive compensation as a corporate governance issue than having it become public policy issue.

    A British Department for Business Innovation and Skills 46-page discussion paper on executive remuneration stated:

    “(O)ver the last decade, the link between pay and performance has been hard to discern. CEO pay has risen faster than the increase in the FTSE 100 index, retail prices or average remuneration levels across all employees for the same period.”

    The paper failed to recognize that over the decade, globalization had increased the scale and complexity of many corporations, the level of competition, and thus the level of skill and knowledge required in managing such corporations, and that this might explain rising pay.

    Even Kenneth R. Feinberg, the special master for TARP executive compensation, could not dictate executive compensation of companies under the Troubled Asset Relief Program. According to a Jan. 23 report by Christy L. Romero, deputy special inspector general for TARP, Mr. Feinberg “could not effectively rein in excessive compensation at the seven companies (he oversaw) because he was under the constraint that his most important goal was to get the companies to repay TARP.” That is, he had to pay up to get the talent he needed to protect taxpayer interests.

    In the United States, shareholders already have useful tools to help them assess and compare executive compensation across companies.

    The Securities and Exchange Commission adopted more extensive executive pay disclosures that took effect in 2007.

    Companies have adopted clawback provisions, driven by shareholder proposals and ultimately required under SEC rules.

    In addition, starting last year companies were required to hold advisory shareholder votes on the golden parachutes, or severance agreements, of top executives.

    Shareholders also can hold accountable their investment advisers on how they vote proxies on executive compensation issues. The Dodd-Frank Act requires institutional investment managers to publicly disclose their votes on “say-on-pay” ratifications and golden parachutes. In addition, the SEC adopted a rule in 2003 requiring mutual funds to disclose their voting records on all proxy proposals.

    Shareholders already have a lot of ways to evaluate executive pay and keep it aligned with their interests. They don't need further governmental intrusion.

    Government intervention in corporate governance purports to seek to give shareholders, as owners, powers they should have. But often shareholders exercise their power in ways that might not match certain expectations. n

    Related Articles
    Secure by sharing risks
    Saying what on pay?
    Proxy reform without access
    Where are the funds?
    Exposing wrongdoing
    Moving ahead with say-on-pay
    U.K. shareholders might get more say on executive pay
    Recommended for You
    DiNapoli_Thomas_Jan2023_i.jpg
    New York State Common asks 7 companies to disclose political spending
    ONLINE_180129955_AR_0_WARRKZGXMCND.jpg
    SSGA expands proxy-voting power to investors in certain institutional funds
    The Institutional Investor's Guide to ESG Investing
    Sponsored Content: The Institutional Investor's Guide to ESG Investing

    Reader Poll

    January 25, 2023
    SEE MORE POLLS >
    Sponsored
    White Papers
    Show Me the Income: Discovering plan sponsor and participant preferences for cr…
    Morningstar Indexes' Annual ESG Risk/Return Analysis
    The Future of Infrastructure: Building a Better Tomorrow
    Outlook 2023: Opportunity in a volatile world
    Research for Institutional Money Management
    View More
    Sponsored Content
    Partner Content
    The Industrialization of ESG Investment
    For institutional investors, ETFs can make meeting liquidity needs easier
    Gold: the most effective commodity investment
    2021 Investment Outlook | Investing Beyond the Pandemic: A Reset for Portfolios
    Ten ways retirement plan professionals add value to plan sponsors
    Gold: an efficient hedge
    View More
    E-MAIL NEWSLETTERS

    Sign up and get the best of News delivered straight to your email inbox, free of charge. Choose your news – we will deliver.

    Subscribe Today
    December 12, 2022 page one

    Get access to the news, research and analysis of events affecting the retirement and institutional money management businesses from a worldwide network of reporters and editors.

    Subscribe
    Connect With Us
    • RSS
    • Twitter
    • Facebook
    • LinkedIn

    Our Mission

    To consistently deliver news, research and analysis to the executives who manage the flow of funds in the institutional investment market.

    About Us

    Main Office
    685 Third Avenue
    Tenth Floor
    New York, NY 10017-4036

    Chicago Office
    130 E. Randolph St.
    Suite 3200
    Chicago, IL 60601

    Contact Us

    Careers at Crain

    About Pensions & Investments

     

    Advertising
    • Media Kit
    • P&I Content Solutions
    • P&I Careers | Post a Job
    • Reprints & Permissions
    Resources
    • Subscribe
    • Newsletters
    • FAQ
    • P&I Research Center
    • Site map
    • Staff Directory
    Legal
    • Privacy Policy
    • Terms and Conditions
    • Privacy Request
    Pensions & Investments
    Copyright © 1996-2023. Crain Communications, Inc. All Rights Reserved.
    • Topics
      • Alternatives
      • Consultants
      • Coronavirus
      • Courts
      • Defined Contribution
      • ESG
      • ETFs
      • Face to Face
      • Hedge Funds
      • Industry Voices
      • Investing
      • Money Management
      • Opinion
      • Partner Content
      • Pension Funds
      • Private Equity
      • Real Estate
      • Russia-Ukraine War
      • SECURE 2.0
      • Special Reports
      • White Papers
    • Rankings & Awards
      • 1,000 Largest Retirement Plans
      • Top-Performing Managers
      • Largest Money Managers
      • DC Money Managers
      • DC Record Keepers
      • Largest Hedge Fund Managers
      • World's Largest Retirement Funds
      • Best Places to Work in Money Management
      • Excellence & Innovation Awards
      • WPS Innovation Awards
      • Eddy Awards
    • ETFs
      • Latest ETF News
      • Fund Screener
      • Education Center
      • Equities
      • Fixed Income
      • Commodities
      • Actively Managed
      • Alternatives
      • ESG Rated
    • ESG
      • Latest ESG News
      • The Institutional Investor’s Guide to ESG Investing
      • ESG Sustainability - Gaining Momentum
      • Climate Change: The Inescapable Opportunity
      • Impact Investing
      • 2022 ESG Investing Conference
      • ESG Rated ETFs
    • Defined Contribution
      • Latest DC News
      • DC Money Manager Rankings
      • DC Record Keeper Rankings
      • Innovations in DC
      • Trends in DC: Focus on Retirement Income
      • 2022 Defined Contribution East Conference
      • 2022 DC Investment Lineup Conference
    • Searches & Hires
      • Latest Searches & Hires News
      • Searches & Hires Database
      • RFPs
    • Performance Data
      • P&I Research Center
      • Earnings Tracker
      • Endowment Returns Tracker
      • Corporate Pension Contribution Tracker
      • Pension Fund Returns Tracker
      • Pension Risk Transfer Database
      • Future of Investments Research Series
      • Charts & Infographics
      • Polls
    • Careers
    • Events
      • View All Conferences
      • View All Webinars
      • 2023 Defined Contribution East
      • 2023 ESG Investing