A Better Way for Say-on-Pay
By Edward J. Durkin and Brad
Special to Roll Call
Nov. 16, 2009, 12:51 p.m.
The near-collapse of financial markets a year ago and
the resulting economic crisis underscore the importance of corporate
governance policies that encourage wise stewardship of company resources
and shareholders’ investments.
As the White House, Congress and
the business community focus on rebuilding the economy and restoring
confidence in markets, corporate leaders and boards of directors have a
responsibility to maintain and strengthen corporate governance policies
that provide incentives for responsible corporate management, ensure
accountability, and optimize value for shareholders.
At Microsoft’s annual shareholder meeting on Nov. 19,
more than 3 million stockholders will have the opportunity to cast an
advisory vote on compensation programs for senior Microsoft executives.
This will be the first time that Microsoft shareholders have a chance to
weigh in on the compensation of the company’s top leaders.
This say-on-pay policy grew out of a dialogue among
Microsoft, corporate governance advocates, other companies and a number of
Microsoft shareholders, including the United Brotherhood of Carpenters and
Joiners of America. The UBC — which manages $40 billion in retirement
funds for 550,000 members who work in construction and related industries
in the U.S. and Canada — has long been a leader in advocating for
corporate governance and executive compensation mechanisms and reforms
that encourage a long-term approach to corporate management and building
A key aspect of Microsoft’s say-on-pay policy —
holding shareholder votes once every three years — was drawn from a
proposal put forth by the UBC.
While others have advocated for an annual say-on-pay
vote, Microsoft and the UBC share the view that a three-year cycle is a
better way of assuring that shareholders have a more effective voice on
executive compensation for a number of reasons:
• Executive compensation programs are designed to
reward performance over a multi-year period. It makes sense to have
say-on-pay votes occur over a similar time frame and correlate with
longer-term business planning cycles.
• A three-year cycle gives shareholders and proxy
advisory firms sufficient time to evaluate the effectiveness of both
short-term and long-term compensation strategies and related business
• Reducing the frequency of say-on-pay votes will
improve the ability of institutional funds to exercise their voting rights
in a more deliberate, thoughtful and informed way that is in the best
interests of workers who are plan participants and mutual fund investors.
• A triennial vote gives the board of directors time
to thoughtfully respond to shareholders’ sentiments and implement any
• Other mechanisms, such as requirements for
shareholder approval of employee stock plans and other
compensation-related matters, allow investors to provide input on an
ongoing basis, including in years when say-on-pay votes do not occur.
For Microsoft, the decision to implement a triennial
say-on-pay plan was informed by discussions with stakeholders and a
commitment to strengthening corporate governance policies. As Congress,
federal regulators, and President Barack Obama consider say-on-pay and
other financial reform legislation, we advocate giving companies the
flexibility to adopt governance policies that suit their particular
circumstances and the needs of their shareholders.
In the end, business leaders, shareholders and
government policymakers share a common goal — the long-term success of
America’s private sector, a stable and growing economy, and job growth.
Strong corporate governance is essential — as is flexibility in how that
governance is implemented.
Durkin is director of the corporate affairs department at the United
Brotherhood of Carpenters and Joiners of America. Brad Smith is general
counsel and corporate secretary of the Microsoft Corporation.
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