The Shareholder ForumTM


"Say on Pay" Proposals

Forum Home Page

"Say on Pay" Home Page

Program Reference


IR Magazine, December 2009 cover story


Crossbow logoPeople on the street

IR magazine December 2009 cover

December 2009

Conversation starter


Discussing executive compensation is a good starting point for shareholder engagement

By Adrienne Baker

In this article

Conversation starter

  • Say on pay is a good jumping-off point for engaging shareholders

  • Formats include governance roadshows, surveys and online forums

  • Many institutions simply following proxy adviser recommendations

By Adrienne Baker

Say on pay is one of the hot topics for proxy season 2010 and is widely viewed by companies as a valuable springboard for engaging major shareholders. ‘You can use a dialogue on say on pay as an opportunity to convey to shareholders that you are interested in their feedback and want to have an open-door policy,’ explains Arvind Sood, vice president of IR at California-based Amgen.

Amgen took the unusual step of asking its shareholders what they thought of its compensation plan last March through a 10-question online survey. Working closely with pension fund TIAA-CREF to design the survey, the company then reached out to its top 30 holders and received a range of responses. ‘Some said they were pleased our plan is performance-based and our metrics are clear and easily understood,’ reports Sood. ‘There were also some concerns. For instance, some were worried about the disparity in compensation between executives and other employees.’

Arvind Sood, AmgenThe net effect was positive, with the survey serving to establish an ongoing dialogue with Amgen’s major holders on several issues, including compensation.

Say-on-pay action
Spurred on by impending US legislation on say on pay, as well as increased pressure from investors on compensation issues, companies are recognizing the value of engaging their shareholders on the issue of pay. Microsoft recently announced its triennial non-binding vote on compensation, and others are expected to follow. ‘More companies are including voluntary say-on-pay votes,’ comments Rachel Posner, senior managing director and general counsel at Georgeson.

‘A lot of companies want to get ahead of the pack on required say-on-pay action,’ adds Arthur Crozier, co-chairman of Innisfree.

The US House of Representatives approved a say-on-pay bill giving shareholders a non-binding vote on executive compensation last April. The timing of its passage now depends on how quickly the Senate moves on the legislation. ‘Most people are expecting say on pay to apply in 2011,’ says Reid Pearson, managing director of the Altman Group. ‘Labor unions and pension funds that have been big proponents of say on pay are not going to go away, however. They will continue to push this year.’

Last year, US corporations receiving Troubled Asset Relief Program funds were required to include a say-on-pay vote. Management proposals on compensation plans were overwhelmingly supported among this group, which fits with the broader trend of voluntary executive compensation votes.

DF King & Co senior vice president Richard Grubaugh points to the fact that pay proposals are still considered ‘routine’ under NYSE Rule 452, which governs discretionary broker voting. ‘These votes are given the routine broker vote, which is why the results are so overwhelmingly in favor,’ he explains.

Stepping out
As it turns out, the dialogue with shareholders on the sensitive topic of pay isn’t as awkward as might be expected. In fact, IROs say it’s useful. Insurance giant Aflac was the first company to voluntarily institute an advisory vote on executive compensation in 2007. The company received a shareholder proposal on say on pay and decided to include a voluntary vote as a way of addressing investor concern.

Kenneth Janke, AflacVice president of IR Kenneth Janke was opposed to the idea early on but soon recognized the value of engaging with investors on compensation. ‘Our CEO pointed out that it is really not that unreasonable for people who have invested their capital or other people’s capital in our company to have a say in how we pay people,’ he says. ‘We also felt say on pay had gathered enough momentum to become law, and a lot of companies would face the same thing.’

Working closely with outside counsel and advisers, Janke made contact with Aflac’s shareholders to find out how they felt about the company’s compensation plan. ‘We didn’t have to do much in terms of winning over investors,’ he reports. For the last two years, shareholders have voted strongly in favor of Aflac’s advisory vote, with 93 percent support in 2008 and 97 percent in 2009.

Governance experts underline the importance of starting early when launching say-on-pay discussions. ‘The process should start as soon as possible,’ says Posner. ‘Proxy and governance work used to be seen as cyclical but it’s really year-round now.’

Pearson suggests including a question about compensation in IR roadshows. ‘Some of the pay practices are confidential but as long as IR is not soliciting a vote, the more information you can glean from conversations with investors, the better,’ he says.

Rachel PosnerCritical to say-on-pay engagement is identifying and gaining access to proxy decision makers. ‘Most IR departments have good relationships with the portfolio managers but they are generally not the primary voters,’ explains Ron Schneider, vice president of business development, proxy solicitation and meeting services at the Bank of New York Mellon. Proxy voters sit on the governance or compliance side of most institutions and their contact with the equity management side varies by institution.

Some institutional investors also tend to simply vote with management or according to the recommendations of proxy advisory services like RiskMetrics Group and Glass Lewis when it comes to pay proposals. For IR, it’s a matter of identifying the proxy voting pattern or decision maker one institution at a time. ‘An experienced proxy solicitor can go down the list of institutions and tell you who is going to make the voting decision,’ adds Crozier.

On the road again
Once IR has identified the proxy decision maker, it’s a matter of finding out what he or she thinks about the firm’s compensation plan. Some IR departments are accomplishing this through special governance roadshows where they meet with proxy voters or proxy committees to discuss various issues, including pay.

‘This offers a good opportunity to understand their particular interests, whether they can push for say on pay and what style of say on pay they want,’ says John Siemann, partner at Laurel Hill Advisory Group.

When Sylvia Groves was chief governance adviser and assistant secretary at Calgary-based Nexen, she found her company’s annual governance roadshow was an effective way to understand shareholder views on compensation. ‘Meeting with shareholders takes some of the risk out of not knowing how our shareholders are going to respond,’ says Groves, who is now principal of GG Consulting. ‘Shareholders can completely disagree on compensation issues so it is important to know your long-term holders and ask them about their pay concerns as they relate to your company.’

During meetings, it’s a good idea to gather feedback on last year’s proxy and find out what investors are focusing on in terms of pay plans and their disclosure. ‘If a company had say on pay last year and the investor didn’t support it, you might want to ask why – was it the company’s disclosure or compensation amounts, for instance?’ says Schneider.

Early days
The good news is there is no cookie-cutter approach to say-on-pay engagement and companies are developing innovative approaches to this type of shareholder outreach, including online surveys and confidential perception studies (see New tools, left). The key is to develop a productive dialogue with institutions and gain useful feedback on compensation.

‘It’s also important to tell your shareholders how your compensation plan fits with your program for building overall shareholder value,’ says Crozier. This is particularly significant if a company’s compensation plan diverges from institutional views or proxy adviser recommendations, he adds.

While it’s clear companies need to understand their shareholder base and where individual holders sit on pay issues, proxy experts suggest a lot of work needs to be done on the institutional side, too. ‘The onus is always on companies to put out more disclosure, but the institutional investors really need to do something with all that information,’ says Crozier.

Most institutions don’t have the internal resources to analyze numerous different pay strategies and will likely follow proxy adviser recommendations. ‘It is very hard for investors owning thousands of stocks to thoughtfully understand companies’ compensation policies,’ says Schneider. Therefore, until institutions can properly and easily understand compensation plan disclosure, it will be a challenge for IR to have meaningful discussions with all large holders.

Still, IROs who have engaged with shareholders on this topic feel this dialogue is important to their IR strategy. ‘Knowing your shareholders and understanding how your shareholders view compensation is part of good IR,’ maintains Janke.

With mounting interest in executive compensation among shareholders, it’s also useful for IR to find out where a company’s holders sit on this topic. ‘Proactively reaching out to our top shareholders ourselves on executive compensation really helped,’ concludes Sood. ‘Companies shouldn’t automatically conclude that the feedback will be negative.


New tools

In addition to one-on-one meetings with proxy decision makers, there are a number of innovative tools companies are using to get investor input on executive compensation. For example, Amgen and Prudential are using online surveys to gather investor comments on their compensation plans.

California-based Intel used an online platform developed by Broadridge called Shareholder Forum last proxy season to engage shareholders. This tool allows validated shareholders to submit questions, vote and answer surveys online. ‘Online surveys can be open to anyone to view but through our validation process, an issuer understands it is hearing from actual shareowners,’ says Chuck Callan, senior vice president of regulatory affairs at Broadridge.

This technology allows companies to develop sampling strategies so the responses they elicit are representative of major shareholder groups. So far companies have asked a range of questions on compensation in an effort to understand shareholders’ views on particular aspects of pay packages.

Confidential perception studies can also be an effective way to gauge shareholder sentiment on pay, and New York-based DF King & Co is developing such studies for compensation issues. ‘This is a difficult issue for anyone to discuss and investors tend to be either too aggressive or too passive,’ says Richard Grubaugh, senior vice president at DF King. ‘We will reach out directly to institutional investors confidentially to get their perception of a firm’s compensation policy.’






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.