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Program Reference - The Advisors' Blog, January 30, 2009 posting


The Advisors' Blog

January 30, 2009

Shareholder “Opt-In” Right to “Say on Pay”

- Richard Smith, Principal, Sibson Consulting

I wanted to bring to your attention this opportunity to influence policies being considered by congress relating to "Say on Pay." If you want to offer your views, you can comment on Professor Jeffrey Gordon’s pre-publication draft paper - entitled ""Say on Pay: Cautionary Notes on the UK Experience and the Case for Shareholder Opt-In" - which presents a company-specific “opt-in” as an alternative to the universal approach in last years house bill.

Professor Gordon’s idea generated both corporate and investor interest when he introduced it at a December meeting of the Shareholder Forum. As both a member of the Forum’s Program Panel - and as a compensation professional whose clients are interested - I have been following this carefully and I would like to know what other compensation professionals have to say about it. It's also important that those making policy hear from people who know what they are talking about.

The following are excerpts from the summaries Professor Gordon provided to Forum participants of his paper’s thoroughly researched review of UK and US marketplace conditions relevant to “Say on Pay” policy decisions:

The paper provides a sober look at how a theoretically attractive idea like SOP is likely to play out in the real world….

In the face of recent lessons, it seems especially unwise to mandate SOP across all 14,000 public firms in the United States. A better approach is to provide federal assurance of the shareholder right to opt-into a SOP regime. This will lead to targeting of firms with the most problematic compensation issues and will reflect commitment of genuine shareholder engagement rather than delegation of decisionmaking to a third party rater. It will also lead to testing and rethinking of compensation ideas in a more thoughtful way.

…[conditions addressed in] this draft buttress the alternative proposal to limit any mandatory SOP rules to the largest firms by showing that the UK precedent itself makes such a distinction: firms listed on the LSE Main Market (1080 firms) are subject to mandatory SOP whereas the smaller firms listed on AIM (1546 firms) are not. In comparing institutional capacity to manage SOP responsibilities, it is also noteworthy that in the UK, 82 companies account for 85% of market capitalization, whereas in the US, the S&P 500 companies account for only 75%.

Comments can be sent to the Forum’s Chairman, Gary Lutin (, either for private submission or for open Forum review. Please note, by the way, that the draft is not a published paper and should be treated accordingly; anyone wanting to refer to its statements should seek permission from the author.

Posted by broc at January 30, 2009 08:19 AM

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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.

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