Risk & Governance Weekly
Issuers and Investors
Attend Roundtable on Pay Votes
Some 150 representatives from more than 40
companies, 20 investor organizations, and 10 law firms and compensation
consultancies attended an April 8 roundtable organized by the Working Group
on Advisory Votes on Compensation.
Pfizer hosted the New York
City forum, which was coordinated by Yale University's
Millstein Center for Corporate Governance and chaired by
Tim Smith, senior vice president of Walden Asset Management.
The day-long meeting featured a series of panel discussions on various
aspects of annual advisory votes, also known as “say on pay.” The issue
continues to divide most institutions and companies, even as five U.S.
issuers have agreed to hold such votes. Panel discussions included:
- ways to improve board-shareholder
communication around executive compensation;
- a review of the United Kingdom’s
experience with annual advisory vote resolutions;
- how proxy advisory firms analyze
executive compensation and view advisory votes on pay; and
- how boards are approaching the issue,
what concerns them, and how they are communicating with investors.
To encourage open discussion, the
attendees agreed that all questions and comments would be kept confidential.
Various papers presented to roundtable participants underscored points and
concerns raised during the discussions. For example, “say on pay” generally
is perceived as positive in other markets, though it has not resulted in pay
declines or measurable improvements in pay for performance. Advisory votes
likely have added more “rationality” to the pay process, as boards must
consider how they will explain their executive pay decisions to
shareholders, and whether there is a good business rationale for them.
There is some concern that annual advisory pay votes would require investors
to expend more resources to analyze compensation (and may lead them to
depend on proxy advisory firms) and that they could stifle boards'
creativity in crafting performance-driven programs. However, the papers
noted that there is no evidence that “say on pay” votes have had a
detrimental impact on companies, investors, or performance in markets where
they occur now.
One idea for U.S. implementation would be to
make pay advisory votes a listing requirement (to ensure consistency across
companies), but allow firms that receive a specified level of support in a
given year to skip one or two years before the next required vote. Such a
“carrot” could make U.S. issuers more comfortable with the concept, one
panelist suggested. --Carol Bowie
Additional documents on pay votes are