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Comments of
Brian P. Hillery
October 11, 2008
I have read with interest the views of many regarding the Forum on “Say on
Pay”. As someone who has seen quiet diplomacy work between companies and
institutional investors, this is in response to the invitation for comments
on the Gordon and Hallock papers.
A few years ago, investors upset with a company’s activities and practices
expressed their concern by withholding votes for directors seeking election
to a company’s board. Withholding votes on directors was an effective tool
to express concern. As different forms of majority voting for the election
of directors becomes more the norm in the United States, the protest vote of
withholding votes on directors becomes more problematic.
Executive compensation has been the lightning rod of shareholder protests in
recent years. Shareholders have expressed their views by withholding votes
on those directors who sit on compensation committees. How can one weigh in
on the compensation practices of public companies now with a majority voting
standard? The simple answer is an annual advisory vote on executive
compensation. This proposal will not only allow shareholders to express
their views but also create more dialog between companies and shareholders.
The annual vote on executive compensation should not be seen as
micromanaging the compensation decisions rather it should be seen as a gauge
on how well the compensation practices of a company are perceived by
shareholders. If an advisory vote on executive compensation receives a
higher than normal negative vote, it will mean the company will have to get
out and work with their largest shareholders to determine the reasons for
such a vote. This will lead to more dialog which is the foundation of an
annual advisory vote on executive compensation.
I support the comments made by John Wilcox which this forum published on
August 1, 2008. An annual advisory vote on executive compensation is a
low-impact means for shareholders to tell directors that more work needs to
be done.
To determine how mutual funds voted on this issue, my firm, WCS Strategic
Partners (“WCS”), reviewed a sampling of the N-PXs submitted to the SEC for
the 2008 proxy season. We reviewed the voting activities of 17 mutual fund
firms regarding the shareholder proposal requesting an advisory vote on
executive compensation. Our study included approximately 250 individual
mutual funds and how each voted ten companies that received a shareholder
proposal requesting an annual advisory vote on executive compensation. The
results of this small study confirm Professor Hallock’s observation on “Say
on Pay”: 56.2% of the votes reviewed voted against this shareholder
proposal, 29.6% supported this measure while 13.7% abstained. Clearly, there
is work to be done.
Brian P. Hillery
WCS Strategic Partners
Reading, Massachusetts
bphillery@wcsstrategicpartners.com
617-721-8428
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