Even major investors wary of ‘say on pay’
Dec 05, 2008
Pros may not outweigh
cons, forum participants say
investors, lawyers, academics, and governance advisers gathered at The
Shareholder Forum in Manhattan yesterday to discuss the momentum in Congress
for enacting rules to curb executive compensation. While the participants
say legislated ‘say on pay’ in the US is an attractive option, there is real
concern about the costs and risks.
There is strong support among
Democrats and Republicans for requiring public companies to hold annual
non-binding votes on top officers’ compensation. But the forum participants,
who are steeped in proxy issues daily, said they had little confidence that
Congress would come up with a truly useful way to tackle the problem across
all companies, given the complexity of the issue.
Even those who seek curbs on
pay are reluctant to over-legislate. ‘There’s the feeling that we don’t want
another SOX,’ said one governance-focused investor, who like all the other
participants, spoke on a not-for-attribution basis.
Some delegates suggested
allowing a longer time for companies to adjust to the SEC’s recent
tightening of rules around compensation, discussion and analysis (CD&A)
disclosure before undertaking major change. One pension fund investor said
the SEC’s revised guidance is getting at what she wants, though companies
still haven’t mastered CD&A reporting.
Investors want, and really
may be satisfied with, a clear focus on how compensation drives business
performance. They would also like to see a consistent response when they
raise pay issues directly with corporate secretaries and IR contacts. ‘We
get a range of responses from them not returning phone calls to calling us
back ten times a day,’ said one.
A company that does reach out
to shareholders on the pay issue noted concern about being caught in a
dragnet. ‘Why should [we] be painted with the same brush as those who don’t
respond to questions on pay?’ said one corporate officer.
Still, there is a key plus to
having a blanket rule. ‘Having say on pay as a right changes how boards
think,’ said one attendee at the forum, which was organized by investment
banker Gary Lutin. ‘There can be systemic benefits.’
By Anna Snider
© copyright 2008 Cross Border Ltd