IROs have to convince on compensation as 'say on pay' gains
Mar 08, 2007
WASHINGTON, DC -- Picture planning a roadshow designed not to highlight your
company's financials but to encourage shareholders to ratify your executive
pay packages with a 'yes' vote on the proxy. This is one idea that
governance experts are floating as executive compensation is debated at a
House sub-committee hearing in Washington today.
On February 14, when Aflac announced it would become the first US company to
give shareholders an advisory vote on executive compensation, the concept of
'say on pay' suddenly began to command some serious attention.
Following closely on the heels of this ground-breaking decision by Aflac,
Barney Frank (D-MA), chairman of the House Financial Services Committee,
introduced legislation (HR 1257) that would let shareholders vote 'yes' or
'no' on a company's executive pay packages.
Although this issue has primarily been discussed by boards and corporate
secretaries, IROs could soon get in on the act. Cary Klafter, Intel's
corporate secretary and VP, legal and corporate affairs, says that he's kept
IR abreast of 'say on pay' developments so that the company isn't blindsided
by an investor inquiry. Should an advisory vote come to pass, IR might be
'the tip of the spear' for initiating a shareholder conversation about pay,
Meanwhile, Stephen Davis, a fellow at Yale's Millstein Center for Corporate
Governance and Performance, urges companies to begin considering how a
dialogue about executive compensation might work. In the UK, where a 'say on
pay' vote has been required since 2003, 'the measure has produced a dramatic
increase in dialogue between investors and boards,' says Davis.
Taking a company's pay message on the road is one of the suggestions Davis
offers in a white paper due out in April, entitled, 'Does say on pay work?
Lessons on making CEO compensation accountable.'
'The white paper will recommend that companies think about producing
roadshows not just for touting financial performance but for entering into a
dialogue with shareholders about pay packages,' says Davis. 'If you have a
dialogue with some of your top investors, you'll quickly get a sense about
what you can sell and what you can't sell. It's not rocket science.'
© copyright 2007 Cross Border Ltd