The Shareholder ForumTM


"Say on Pay" Proposals

Forum Home Page

"Say on Pay" Home Page

Program Reference


The article below was published in Agenda, a Financial Times private subscription service for corporate directors, and is presented with permission.

For views of the alternatives to annual voting processes reported below, see


Agenda, November 23, 2009 article


The week's news from other boardrooms





Article published on November 23, 2009
By Kristin Gribben


U.S. companies and investors that are committed to some form of say on pay are divided over the best model to adopt.

The problem is that no benchmark for say on pay is emerging. Some companies and investors are advocating biennial or triennial votes on compensation. Even if annual votes are mandated by Congress — a bill that would mandate annual say-on-pay votes has passed the House of Representatives — it’s unclear whether the SEC will specify how companies should word the resolution. Minor differences in language can mean votes on entirely different aspects of compensation: the philosophy of the pay plan, the actual amount of compensation or the quality of the disclosure in proxy statements.

This means boards have their work cut out for them if they are considering adopting say on pay. Companies that have already adopted the policy say communicating with shareholders to decide what policy they prefer is the best place to start. But the absence of uniformity could also mean confusion among investors over determining what pay plans they are voting on in a given year and what exactly the board is asking for a vote on.

The lack of consensus in the U.S. stands in stark contrast to what’s happening in Canada. The Canadian Coalition for Good Governance has been getting issuers to adopt a uniform say-on-pay resolution in an effort to create a standard for what the purpose of the policy is.

Different Models in the U.S.

Microsoft made waves in September for becoming the first company to adopt a triennial version of say on pay. The next month Prudential Financial and Pfizer became the first issuers to adopt a biennial version. These big name companies could pave the way for more to follow.

The idea of triennial say on pay was spawned by the United Brotherhood of Carpenters and Joiners.

The union had all but given up its fight for a modified version of say on pay, withdrawing proposals at 18 companies in September following the passage of annual say on pay by the House this summer. But about a week later, Microsoft announced it would be the first company to adopt the policy.

The triennial version gives investors more time to evaluate a company’s pay programs “because you see how compensation works over a period of time,” says Microsoft vice president and Deputy General Counsel John Seethoff. It also reduces the burden on investors and gives proxy advisory firms “an opportunity to be more thoughtful,” he says.

In its 8-K filing announcing the policy, Microsoft says its compensation program is designed to reward performance over a multi-year period, making the triennial version the most logical choice.

Over 98% of shareholders supported the company’s executive pay practices in its first say-on-pay vote at its annual meeting Nov. 19, according to a company press release.

Prudential Financial gives similar reasons for its decision. Peggy Foran, Prudential’s vice president and chief governance officer, says the company asked its shareholders their thoughts on say on pay and received feedback that an annual vote would be too much work at a time when “institutional investors are trying to step up their obligations,” she says.

“We’re all experimenting right now… if it doesn’t work [the board] will go back to the drawing board,” Foran says.

Tim Smith, senior vice president of Walden Asset Management, which filed an annual say-on-pay proposal at Microsoft, says its explanation for going with the triennial version makes some sense. He is still, however, in favor of an annual vote.

Canada’s Push for Uniformity

The Canadian Coalition for Good Governance (CCGG), which represents most of Canada’s large institutional investors, has taken a more proactive role in creating a standard for say on pay than its U.S. counterpart, the Council of Institutional Investors (CII).

CCGG introduced a model say-on-pay resolution last month that it has gotten nine companies to adopt so far. CII, on the other hand, passed a resolution in 2007 saying it supports an annual shareholder say-on-pay vote, but has done little since then to get involved.

“Every company was starting to develop their own standard and resolution,” says CCGG director Stephen Griggs. “We felt since many of our members, if not all of them, voted in favor of say on pay that we should move it forward in an organized fashion.”

The model resolution asks shareholders to vote on the approach to executive compensation disclosed in the company’s proxy statement. It goes on to say, “In the event that a significant number of shareholders oppose the resolution, the board will consult with its shareholders (particularly those who are known to have voted against it) to fully understand their concerns and will review the company’s approach to compensation in the context of those concerns.”

It also recommends that the board, when faced with a “significant number” of shareholders who oppose the compensation, disclose within six months, and no later than the following year’s proxy statement, a summary of the comments received from shareholders in the engagement process and any changes to the compensation plans as a result of the process.

CCGG is also meeting with the chairman of the board and chairman of the comp committee of 25 companies that have adopted say on pay next year to discuss their pay plans. The coalition plans to make recommendations to its members on how to vote based upon conversations with the board, Griggs says.

The Experience at TARP Companies

Walden Asset Management’s Smith says that while he’s in favor of a policy dictating an annual say-on-pay vote, when it comes to how companies word their resolutions, there isn’t a need for uniformity.

He notes that most TARP companies came up with similarly worded resolutions when forced to adopt say on pay this year even without specific requirements dictated by Congress or the SEC.

While that’s true, some TARP recipients’ say-on-pay resolutions differed in small, but notable, ways.

TCF Financial, a bank holding company based in Minnesota, asked stockholders at its annual meeting this year to “approve the compensation of the company’s executives as disclosed pursuant to the compensation disclosure rules of the Securities and Exchange Commission.” The problem is that the SEC has yet to finalize its disclosure rules and there is “nothing scheduled at present,” says a spokesman.

In its say-on-pay resolution, Connecticut-based Webster Financial emphasizes the philosophy of its pay programs and not the actual amount of pay. The resolution asks shareholders to “approve the executive compensation philosophy, policies and procedures described in the Compensation Discussion and Analysis.”

In comment letters for the SEC’s proposed guidance for say-on-pay resolutions at TARP firms, several groups call on the commission to develop standard language.

“A uniform standard would create a level playing field… [and] would provide needed guidance and uniformity,” partners from the law firm Sullivan and Cromwell write.

That logic would apply to all companies if say on pay becomes law.

“It’s helpful for both issuers and shareholders to have some expectation of what should be included in the language,” says Eleanor Bloxham, CEO of The Value Alliance. Of course, that wouldn’t happen until Congress directs the commission to do so.

But Microsoft’s Seethoff says the flexibility companies currently have in the U.S. to adopt say on pay in any form they choose is preferential to a rigid standard that might be emerging in places like Canada: “When you look across the U.S. market, it’s quite different in size and diversity… in that context it is worthwhile to experiment with [say on pay].”

If, however, after a few years a generally accepted standard for say on pay has not emerged, Seethoff says he could foresee a stakeholder group coming together to advocate one.



|| Copyright ||

An Information Service of Money-Media,
a Financial Times 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.