Say-on-pay critics warn of
Proposed law could mean lawsuits galore, plus additional legislation, Oxley
Proposed legislation to give investors an advisory vote on executive pay, if
passed, would lead to the unintended consequences of messy litigation and
more law-making from Congress, according to Michael Oxley, vice chairman of
Nasdaq and a former Republican representative from Ohio.
Addressing the annual conference of the National Association of Corporate
Directors in Washington last week, Mr. Oxley said that the so-called
say-on-pay proposal being floated by Rep. Barney Frank (D-Mass.), chairman
of the House Committee on Financial Services, “will not stop at a
non-binding vote” because there are so many unanswered questions about how
the process would actually work.
Mr. Oxley said that while Mr. Frank has said to “take the proposal simply at
face value,” the Senate would likely have to make amendments to the
proposal, as boards try to determine what their responsibilities are if
shareholders vote against their pay programs.
“Litigation would not be far behind the Senate,” Mr. Oxley suggested.
Say on pay and executive compensation in general were very much on the minds
of the roughly 600 attendees. Now that businesses have completed the first
proxy season under new Securities and Exchange Commission pay disclosure
rules, much of the focus has turned to 2008—an election year in which
executive compensation will likely be a flash-point issue. (Presidential
hopeful Sen. Barack Obama [D-Ill.] has created a companion bill to Mr.
In a session on the top proxy issues for next year, Patrick McGurn, special
counsel to proxy adviser Institutional Shareholder Services, said the
say-on-pay issue—along with proxy access for shareholders to nominate
directors—will likely give way to a confrontation between investors and
companies if directors don’t immediately reach out and begin discussions
with key shareholders.
“The clock is now ticking, and there’s limited time before consensus can be
made,” he said, or it “will be mandated like Sarbanes-Oxley.”
A consensus, of course, will be tough. Mr. McGurn noted that while polls
show 85% of investors support a say-on-pay vote, 95% of corporate directors
are against it.
Later, in a session on executive pay, Pearl Meyer, senior managing director
at compensation consulting firm Steven Hall & Partners, said, “Say on pay is
going to put us into a morass.” She predicted that the issue will be a huge
bonanza for proxy advisory firms like ISS and Glass Lewis.
“If [the proposal] goes through, buy stock in [ISS parent] RiskMetrics,” Ms.
During the same session, Michael McCauley, director of investment services
and communications at the State Board of Administration of Florida, said
more communication between board members and shareholders is “extremely
important” in solving the pay problem. Many companies are still “very
defensive” and “would rather we go away,” he said. “Please talk to your
shareholders, have a dialogue and disclose more, and we’ll all be better
Phillip Lochner Jr., a director at Apria Healthcare and Monster Worldwide,
agreed that talking regularly to shareholders and “knowing their thinking on
subjects” is increasingly important for directors, particularly when
investors don’t clearly understand a company’s strategy. FW
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