Asking How “Say on Pay” Relates to
An initial open meeting of the new
Shareholder Forum program for reconsidering “Say on Pay” is expected
to be scheduled for some time in early August. Its purpose will be to
decide what needs to be addressed, and what projects should be organized.
This Forum program requires special attention to the need for
decision-making information that is (a) relevant and (b) reliable. Your
comments will be appreciated to guide our progress, either with the
following preliminary plans or with other processes you may suggest.
Focus on what actually works
Discussions with several Forum participants have encouraged a
fundamental shift in how we look at the issues:
How would “Say on Pay” benefit the management and
shareholders of a company that has been successful in the
This is very different from the focus of activists on how to fix a company
they have targeted as a failure.
Putting it in economic terms, we would be looking at “Say on
Pay” in the context of a capitalist system in which assets should be
managed by those who win the marketplace competition. Executive
compensation is a key element of that system, assuming it rewards the
winners and stimulates the desired competition. The question we need to
ask, then, is whether a “Say on Pay” policy will help to separate the
winners from the losers, and support the essential process of reallocating
capital to those who can manage it most effectively.
Our examination of what actually works in the marketplace should of course
be based on observations of companies that have actually demonstrated
marketplace success. Suggestions of exemplary companies – tested winners
of commercial competition that properly reward both managers and investors
– will be welcomed.
Assure the reliability of information
Responding to concerns about the conflicting information cited
in support of the various advocacy positions, we are considering the
organization of a special Forum panel to review the academic integrity of
research and data being presented to decision-makers. We may also want
this panel to be able to initiate relevant research.
Investors as well as corporate and public decision-makers need to know
what information is reliable. The reports presented by governance experts
and policy advocates to influence marketplace decisions should be held to
exactly the same standards of accuracy that we demand in SEC-regulated
reports presented by corporate managers.
The “Say on Pay” issue is obviously complicated, but we can
make it a lot less confused by looking at real facts and concentrating on
the ultimate interests of investors – which should, of course, be the same
as the interests of the corporate managers who would be rewarded for
making good use of the investors’ capital.
Please tell me during the next week what you want to know, and
what you think other investor, corporate and government decision-makers
should understand to make our marketplace work fairly and effectively.
GL – July 15, 2008
Lutin & Company
575 Madison Avenue, 10th Floor
New York, New York 10022