Earlier this week, Pat McGurn, Special Counsel of RiskMetrics’ ISS Division,
participated in a TheCorporateCounsel.net webcast: “Forecast for 2009 Proxy
Season: Wild and Woolly.” The excerpt below was culled from the
webcast transcript and it deals with "say-on-pay” (Pat also discussed a
number of other "hot" compensation issues):
Issue number four is last year's number one issue, which is say-on-pay.
I think it's going to go from what I call “stagnation” to “legislation”
over the course of the year. I think it's pretty clear right now that Rep.
Barney Frank is going to follow through very quickly by reintroducing the
say-on-pay legislation, which he passed through the House with a 2/3 vote
back in 2007.
The big question, of course, is when will the mandate become effective?
I think it's pretty clear that you're not likely to see a federal mandate
playing a major role in the 2009 proxy season. By the time the regulations
would get written, I think we're looking more at impacting public
companies in 2010.
As a result, say-on-pay is going to remain a top shareholder proposal
topic in 2009. I think we will see a huge increase in voting support this
year, as more and more investors figure this is a fait accompli due to the
likelihood of legislation being adopted.
I think last year support stagnated in the 42% range, although we did
see a bump up in the number of companies with majority votes on the topic,
including a couple of strong votes at Apple and Sun Microsystems. Apple's
meeting will be coming up shortly and we may get a good feel on how the
issue is going to fare this year.
Suffice it to say, we're likely to see some of the mutual fund
complexes that have held out and continue to vote against say-on-pay
perhaps flipping this year and supporting the resolutions given the
likelihood of a legislative solution on this issue. I think management
votes have already been promised by more than ten firms. We saw very
strong support at Aflac, the first company in the US to have a
management-proposed say-on-pay vote, and the resolution on the ballot was
supported by 95% of the votes cast range.
We've also seen the first major significant “thumbs down” on a
say-on-pay resolution offered by a board this past season at Jackson
Hewitt Tax Services, where nearly 40% of the votes cast were cast “thumbs
down” on that management proposal. Clearly Jackson Hewitt has not sunk
into the sea, so the naysayer's notion that this will cause corporate
calamity if there's a high “no vote” on a management proposal did not come
to bear. I think this will eliminate one more argument that's been used to
urge people to vote against say-on-pay.
Board members still don't appear to be warming up to the concept of
say-on-pay. Even though it is looking highly inevitable at this point in
time, we do expect to see a number of boards break ranks this season and
become early adopters on management proposals, if for no other reason than
it gives them some discretion at least for 2009 to design a management
proposal on say-on-pay in the fashion that they'd like to see it designed.
In doing so, they could actually have some impact perhaps on how the SEC
finally writes regulations that will mandate these annual advisory votes
for all public companies.