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November 28, 2008 Forum Report:

Observations on Responsible Use of “Say on Pay”



Forum Report


Observations on Responsible Use of “Say on Pay”

            The comments below were requested of Daniel Summerfield to provide Forum participants with a summary of the observations he offered during one of the recent workshop discussions of issues to be addressed at the Forum’s open meeting this Thursday, December 4.

Dr. Summerfield’s comments include a must-read example of the kind of research and communications that can make “Say on Pay” work constructively, for both investors and corporate managers.  It shows clearly that “Say on Pay” can be more than a tool for confrontational grandstanding or a path to bureaucratized decision-making.  And it will also give you a sense of the resources and processes that will be needed to support this more constructive use of “Say on Pay” in the US marketplace.

 Those of you who can attend Thursday’s meeting are encouraged to consider Dr. Summerfield’s observations in your thinking about what an investor will need to deal responsibly with the expected new “Say on Pay” duties, in very practical terms of information and communication processes, so that we can develop plans to address those needs.


           GL – November 28, 2008


Gary Lutin

Lutin & Company

575 Madison Avenue, 10th Floor

New York, New York 10022

Tel: 212-605-0335





Comments of

Daniel Summerfield

November 25, 2008


Supplemental Example


Preparing for a ‘Say on Pay’ - Lessons from the UK

USS is a keen advocate of the need to introduce a ‘Say on Pay’ system in the US. Although not a panacea, in and of itself, in the UK it has produced a significant improvement in the degree of interaction between companies and investors on the issue of executive compensation. Enhanced engagement can indeed provide an opportunity for companies to gauge shareholders’ views in advance of a company meeting and can be used to avoid any unpleasant surprises. As it now looks likely that ‘Say on Pay’ will be introduced in the US with a new administration coming into power, it is important to understand the potential implications for investors.

  1. Don’t underestimate the amount of work involved in the consultation process.  If done properly, the increase in number of executive compensation consultations and the analysis of proposals can be a very resource intensive exercise. The UK’s Association of British Insurers (ABI) estimates that consultations initiated by companies before they finalise compensation plans has tripled in recent years.

  2. Ensure that there are sufficient resources available to meet the increased workload.  This could be undertaken in conjunction with other investors by, for example, appointing a specialist remuneration consultant to work on behalf of pension funds.

  3. Do not expect to be able to rely on proxy voting agencies re: consultations. The consultations are often conducted in private and are very company specific.

  4. Do consider executive compensation within the context of the company’s operations. There is a need to consider company and sector specific information and ensure incentives are linked to strategic objectives and execution and value drivers within the company.

  5. Do provide explanations to companies when voting against.  Investors need to be able to provide explanations and alternative proposals if they expect companies to address concerns.

  6. Focus on the issue of reward for performance and not just on avoiding rewards for failure – ie.,what sort of behaviors are investors seeking to encourage and over what sort of time frame.

  7. Beware of the temptation to set specific guidelines on accepted targets as they will come back to haunt you.  This was done in the UK with regard to acceptable EPS targets.

  8. Be aware of a move towards cookie-cutter type approaches to compensation by companies.  This is where companies are tempted to take off-the-shelf remuneration solutions provided by remuneration consultants.

  9. Do encourage all investee companies to address executive compensation properly – not just ones with poor performance records.

  10. Pension funds should ensure that their fund managers are addressing this issue properly and are adequately resourced.

In summary it is important not to underestimate the challenges involved if and when ‘Say on Pay’ is introduced. On the whole, and if the engagement tool is utilized properly by both companies and investors, there are significant benefits to be accrued by all parties concerned.


Dr Daniel Summerfield

Co-Head of Responsible Investment

Universities Superannuation Scheme (USS)

99 Bishopsgate

London EC2M 3XD




Supplemental Example

November 27, 2008



…I have attached a cover letter and an analysis of a UK retail company’s executive compensation arrangements which was sent, following a meeting and request, to the Comp Chair.


This should serve as an example of:

  1. Opportunities that should present themselves, with the introduction of ‘Say on Pay’, to influence exec comp

  2. The increased interaction between investors and companies and directors on this issue

  3. The amount of extra work involved and need for additional resources if done properly

  4. The need to be very company and sector specific and focus on strategic objectives and value drivers when looking at exec comp

  5. The importance of collaboration

  6. The need to integrate exec comp into the investment process (note: head of USS’s UK equities was a signatory to this letter)


Daniel Summerfield







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.

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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.