The Shareholder ForumTM


"Say on Pay" Proposals

Forum Home Page

"Say on Pay" Home Page

Program Reference


For the Towers Watson report of its survey results referenced below, see


Reuters, January 5, 2011 article



By Dena Aubin

NEW YORK | Wed Jan 5, 2011 2:42pm EST


(Reuters) - Corporate America is bracing for the judgment of shareholders on lucrative executive pay packages, tossing out some perks, tweaking pensions and taking pains to show how compensation is linked to performance.

Nearly half the U.S. companies surveyed by consulting firm Towers Watson were adjusting their pay-setting process ahead of the spring votes required at least every three years under the Dodd-Frank financial reform law.

The "say-on-pay" votes are non-binding and come after a strong rally in shares and two years of improved corporate earnings, perhaps blunting shareholder anger at packages that averaged $9.25 million for CEOs at S&P 500 companies in 2009. That is 263 times the average worker's pay, according to AFL-CIO data.

But advocates of the measure and some compensation experts say a number of pay packages will likely be rejected by shareholders, putting pressure on boards to improve compensation practices for chief executives and other top officers.

"We do believe that the day of reckoning has come for overpaid executives," said Brandon Rees, deputy director in the office of investment at the AFL-CIO union federation, a critic of excessive executive pay.

Some companies had already allowed advisory votes on pay as part of their annual meetings, but the Dodd-Frank law that was enacted last year ensures wide use.

"There's a very strong awareness in the boardroom that shareholders are going to be paying attention to pay for performance," said Doug Friske, global leader of compensation at Towers Watson.

"Companies are looking at plans in anticipation of say-on-pay votes, looking at aspects that might be considered irritants and deciding whether to keep them," he said.


Pay-for-performance has been a mantra for years, and generous perks have already been trimmed sharply in the face of shareholder ire.

Even so, the say-on-pay votes that will be on proxy statements this year are one more step toward greater shareholder influence over compensation. Proxy statements, typically sent in the spring, are used by companies to solicit shareholder votes and report on top officers' pay.

Though many companies had already improved compensation practices, they are paying more attention to how they explain their pay policies and taking a second look at the link to performance, according to the survey by Towers Watson.

While say-on-pay votes are advisory only, most companies want to avoid the embarrassment of a "no" vote. In addition, proxy advisory firms have said that they may recommend that shareholders vote out any boards that ignore say-on-pay votes.

Companies are especially reluctant to draw disapproval from proxy advisory firms. These advisers are expected to gain influence because mutual funds and other big investors do not have time to review every pay plan.

Among early filers that have already issued proxy statements, a number are eliminating pay practices that have been cited as problematic by proxy firms.

Visa Inc , Johnson Controls and Monsanto Co for example, have all said they ended or limited some tax gross-ups, which are reimbursements for taxes paid on perks or so-called golden parachutes.

Visa also said it ended purely personal use of its corporate aircraft by top executives, a trend seen at many other large U.S. companies in recent years.


The Securities and Exchange Commission in 2007 ignited the trend of eliminating fringe benefits when it began requiring companies to provide detailed disclosure of perks. Say-on-pay votes are expected to accelerate the trend.

"Some companies I've talked to have just taken the position that they're not going to offer any perks to the executive team," said John MacDonald, managing director at consulting firm LECG.

Though the composition of pay may change, it remains to be seen whether overall compensation will be reined in.

Towers Watson says average CEO pay likely rose in 2010 as business conditions improved and executives collected bigger bonuses or incentive compensation.

Since securities regulators began requiring more disclosure of CEO pay in 1992, executives have been able to see in detail what others are earning, spurring "pay envy," said Broc Romanek, a former SEC lawyer and editor of, a website that helps consultants and directors fashion pay practices.

"Every board wanted to pay their CEO in the top quartile," nudging median pay higher every year, he said.

Investors have usually been tolerant of high CEO pay when the economy is strong and companies are doing well. However, Occidental Petroleum, Motorola and KeyCorp, had their pay packages rejected last year. That number may grow as say-on-pay votes become widespread.

"Shareholders are still wounded in terms of the value of their portfolios compared with three years ago," said Carol Bowie, head of compensation research at Institutional Shareholder Services, a proxy advisory firm. "They're going to be scrutinizing pay packages and pay changes very carefully -- we certainly are."

(Reporting by Dena Aubin; Editing by Tim Dobbyn)


Copyright 2010 Thomson Reuters




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.