The additions to this draft buttress the alternative proposal to limit any mandatory SoP rules to the largest firms by showing that the UK precedent itself makes such a distinction: firms listed on the LSE Main Market (1080 firms) are subject to mandatory SOP whereas the smaller firms listed on AIM (1546 firms) are not. In comparing institutional capacity to manage SoP responsibilities, it is also noteworthy that in the UK, 82 companies account for 85% of market capitalization, whereas in the US, the S&P 500 companies account for only 75%.

The paper provides a sober look at how a theoretically attractive idea like SOP is likely to play out in the real world,  with two particularly important takeaways:

▪     First, SOP is likely to promote a trend toward "one size fits all" compensation practices, when we've just learned a) that stock options, promoted as the "one size fits all" solution to incentive alignment issues, can work out very differently – even disastrously – across some business sectors and firms and b) have come to appreciate the systemic risk involved in rapid roll out of conventional wisdom about best practice.

▪     Second, SOP is likely to magnify the influence of proxy advisory services, who will be rating firm-specific compensation practices, when we've just learned the risk of empowering and relying upon rating agencies, particularly where consulting is tied to rating.

In the face of recent lessons, it seems especially unwise to mandate SOP across all 14,000 public firms in the United States.  A better approach is to provide federal assurance of the shareholder right to opt-into a SOP regime.  This will lead to targeting of firms with the most problematic compensation issues and will reflect commitment of genuine shareholder engagement rather than delegation of decisionmaking to a third party rater. It will also lead to testing and rethinking of compensation ideas in a more thoughtful way.