The Shareholder ForumTM


"Say on Pay" Proposals

Forum Home Page

"Say on Pay" Home Page

Program Reference


See also companion article:


Washington Post, December 21, 2008 article


The Washington Post


Shareholders Seek More Say on Pay

By Heather Landy
Special to The Washington Post
Sunday, December 21, 2008; F01

So you're a shareholder in a company you believe pays its top executives far too much. What can you do about it?

Well, not much -- for now.

But the deepening financial crisis -- and the growing outrage over executive pay packages and the arrival of a new White House administration -- are breathing new life into the "say on pay" movement, which aims to give shareholders a stronger voice on corporate compensation.

Companies adopting say-on-pay policies agree to hold annual shareholder votes on executive compensation packages. The votes would not be enforceable -- boards would still have the ultimate responsibility for setting pay -- but advocates of the policy say it gives shareholders an important venue for voicing their opinions.

Say on pay has been gathering momentum slowly. In the 2008 proxy season, shareholders filed more than 75 say-on-pay resolutions, averaging 42 percent support and winning majority votes at 10 companies, according to RiskMetrics, which researches corporate governance trends. That was up from a 41.7 percent average support level the previous year, when say-on-pay resolutions passed at eight companies.

Activist funds suspect they'll find broader support going into the 2009 proxy season, when say-on-pay resolutions are expected to be filed with more companies, and in some cases re-filed with companies where the measures failed in previous years.

Skeptics question the effectiveness of say on pay when it comes to restraining runaway compensation. Like many of the matters shareholders take up at annual meetings, say-on-pay votes are nonbinding, meaning boards can simply take shareholders' sentiments under advisement without carrying out reforms.

And opponents of say on pay argue that it undermines the authority of boards and could steer talented executives into private companies where their compensation would be subject to less scrutiny.

But now that the deepening financial crisis has turned executive pay into a potent rallying cry, corporate governance experts are predicting a growth of support for say-on-pay initiatives.

"Clearly there's something crazy going on with executive compensation. Is it going to be fixed by say on pay? My sense is that just the mere discussion of it has already had some impact," said Jay Lorsch, a professor at Harvard Business School and chairman of its Global Corporate Governance Initiative. "People in boardrooms are realizing that the growing criticism of the business community is a thing to be concerned about, and that to get back into the public's good graces, they've got to do something."

The pressure to reform pay also is playing out on Capitol Hill, where debate over the government's role in the issue has been a key part of the discussion over the bailout of the financial industry and the federal loans sought by automakers. The public furor over pay practices could clear the way for legislation requiring say-on-pay votes at public companies, governance experts said.

It's a remarkable turn of events for say-on-pay proponents.

The fledgling movement was nearly written off six months ago, as legislative efforts to force companies to implement say-on-pay policies stalled in the Senate and failed to win several closely watched shareholder votes. But the Illinois Democrat who introduced the Senate bill, Barack Obama, is now headed to the White House. And Rep. Barney Frank (D-Mass.), who helped get a say-on-pay bill passed in the House in 2007, plans to reintroduce the issue in the next Congressional session.

Meanwhile, many of the say-on-pay shareholder resolutions that came up short at annual meetings in 2008 appear likely to resurface in 2009.

New York City Comptroller's Office spokesman Michael Loughran said the city's employee retirement system, which oversees about $95 billion of pension money, resubmitted a say-on-pay proposal to Home Depot after garnering 42.1 percent of the vote at the company's last annual meeting.

"Given the widespread negative impacts of corporate greed, it is indisputable that excessive executive compensation must be reigned in," Loughran said. "Shareholders must be afforded a fundamental right to cast an advisory vote on the executive compensation proposals of public companies."

Critics of corporate compensation practices point to frequent disconnects between pay and performance. The Corporate Library, a governance research firm, found that only six of last year's 30 highest paid chief executives had a better five-year track record than their peers when it came to delivering shareholder returns.

The recent carnage in the stock market may help level the playing field, as many executives who rely on stock option grants for the bulk of their compensation find themselves unable to exercise their awards at a profit. Even before this year's slump, executives at one in three companies were holding out-of-the-money stock options in 2007, according to consulting firm Watson Wyatt. But the market's decline may work to the advantage of say-on-pay advocates. Efforts to fix what some would call a broken compensation system resonate with shell-shocked investors.

Boston Common Asset Management, a fund at the vanguard of the say-on-pay issue, failed to find enough support from fellow investors this year for its proposals to adopt say on pay at IBM and Waddell & Reed Financial, where only 43.3 percent and 49.5 percent of the respective votes were cast in favor of implementing the policy. But Boston Common has refiled say-on-pay resolutions with both companies for their 2009 annual meetings.

"With the new administration coming in and the economy in the state it's in, this is an issue that's not going away," said Dawn Wolfe, a researcher at Boston Common. Other major proponents of say-on-pay policies include the California Public Employees' Retirement System and the American Federation of State, County and Municipal Employees. Say-on-pay laws allowing for advisory votes by shareholders have been on the books for several years in countries including Britain and Australia. But it is still a relatively young concept in the United States.

In May, shareholders in Aflac, the first American public company to agree to an advisory vote on pay, cast their ballots. Only 2.5 percent voted against the compensation granted to the insurance company's top executives -- not that Daniel P. Amos, Aflac's longtime chief executive, was worried.

Say on pay "gives shareholders an opportunity to express how they feel," Amos said. "I think in life people want to be heard, and I think what has happened in recent years is there's a feeling out there that they are not being heard. Well, our shareholders are being heard. And if they had voted no on our pay, then we would have changed going forward because it would have sent us a signal that we need to evaluate what we're doing."

Pharmaceutical giant GlaxoSmithKline, which in 2003 became the first big British company to have its pay plan rejected by shareholders, replaced the head of its compensation committee that year and hired a consulting company to review its policies and listen to investors' concerns. Soon after, the $28 million severance promised to the chief executive if he were to lose his job was reduced to $5.6 million. The next year, the company's pay plans were approved by a vote of 82 percent.

There's no guarantee that U.S. companies that adopt say on pay would be as responsive. While nonbinding votes frequently spark boardroom discussions, they don't always lead to reform. But it's that type of ambiguity that makes weighing in on say on pay a relatively easy call for Congress, said Steve Balsam, a professor at the Fox School of Business at Temple University in Philadelphia. "It's a way for politicians to do something, or say they're doing something, about executive compensation without actually mandating anything," Balsam said. "It just sounds good."


Copyright 1996- 2008 The Washington Post Company




This Forum program is open, free of charge, to anyone concerned with investor interests relating to shareholder advisory voting on executive compensation, referred to by activists as "Say on Pay." As stated in the posted Conditions of Participation, the Forum's purpose is to provide decision-makers with access to information and a free exchange of views on the issues presented in the program's Forum Summary. Each participant is expected to make independent use of information obtained through the Forum, subject to the privacy rights of other participants.  It is a Forum rule that participants will not be identified or quoted without their explicit permission.

The organization of this Forum program was supported by Sibson Consulting to address issues relevant to broad public interests in marketplace practices, rather than investor decisions relating to only a single company. The Forum may therefore invite program support of several companies that can provide both expertise and examples of performance leadership relating to the issues being addressed.

Inquiries about this Forum program and requests to be included in its distribution list may be addressed to

The information provided to Forum participants is intended for their private reference, and permission has not been granted for the republishing of any copyrighted material. The material presented on this web site is the responsibility of Gary Lutin, as chairman of the Shareholder Forum.