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Douglas K. Chia, whose comments are presented below, is Senior Counsel & Assistant Corporate Secretary of Johnson & Johnson, and is a member of the Forum’s Program Panel for reconsidering “Say on Pay.”  As indicated, he is presenting his own personal views and not the positions of Johnson & Johnson.

For links to the referenced draft of Professor Gordon's paper and other comments, see



Comments of

Douglas K. Chia

February 17, 2009


What follows are some thoughts on Professor Gordon's paper and the comments of others on the same paper. These are my own personal views being shared for the purpose of discussion among Forum participants, and, according to Forum rules, should not be quoted without explicit permission:

1.  I applaud Professor Gordon's work on the subject of say on pay ("SOP").  This is a significant contribution to the larger discussion and one that I hope will attract the attention of the legislators and regulators who may be on the verge of implementing some kind of SOP regime.  In particular, I appreciate Professor Gordon's multi-layered analysis of the much thrown-around, but not universally-defined phrase "pay for performance" and his overview of the UK experience with advisory votes on executive compensation. 

2.  Professor Gordon's proposal for an "opt-in" system is an interesting one.  It would create a Federalized, two-step process for SOP to be enacted at any public company.  However, I'm not sure we really need this, as what we currently have--rules under which any shareholder who has held at least $2,000 worth of a company's stock for over one year can submit a proposal for the company to implement SOP and effectively force the company to ask its shareholders whether they would like to "opt-in" to a SOP regime--serves the same purpose and seems to have the same outcome.  When Federalizing particular aspects of state corporate law, we always run the risk of further gutting the diversity of the laws of the different states.  In this case, would what we get in return be worth this risk?  This is a question that I think must be answered when considering Professor Gordon's opt-in proposal, or, for that matter, any other implementation of SOP by means of Federal law/regulation.

3.  Professor Gordon's proposal to create some kind of size requirement for companies to be subjected to SOP is one with which I don't necessarily agree.  I would think that the risk of having broken executive compensation programs would be just as great, if not greater, at smaller companies, especially ones that are run by a few founders or those that are overly reliant on non-cash incentives due to the absence of present cash flows and/or profits.  And while creating a SOP regime would result in additional costs to public companies, they clearly would not be of the same magnitude as the SOX 404 regime, and thus not something that would cripple a smaller company.

4.  Contrary to some of the other commenters, I don't think that most corporations' #1 argument against SOP is that they don't "deserve" to be "punished" with SOP.  Instead, I think the biggest objections/fears coming from companies and their boards are: (1) Allowing a SOP regime to be created could very well mark the beginning of a quick slide into referendum-style corporate governance in the United States (It would stand to reason that once they are successful in getting SOP, shareholder activists would use similar strategies and arguments to force companies to have "say on...[you name it]"); and (2) The outcome of annual SOP votes may be effectively controlled by proxy advisory services that have no regulatory oversight and no accountability to anyone except their own clients, and, in some cases, significant conflicts of interest.  At this point, the risk of having the outcome of such votes determined based on the whims of these for-profit entities may be too great given companies' past experiences with these firms.  (However, if we are all given a few years to observe how proxy advisory firms approach SOP recommendations at the small number of companies that have elected to implement SOP so far and the TARP companies that will soon be subjected to SOP, this particular fear may be somewhat allayed.  TARP has effectively created a sort of involuntary pilot program for SOP.  Perhaps we should all observe how that pilot program plays out for a few years before expanding it to other industries?)

5.  For those who say that SOP will create some kind of check on management and the board in the same fashion as independent auditor ratification votes, let's remind ourselves just how routine and meaningless those auditor ratification votes have become.  While shareholder ratification of the appointment of independent auditors may be a good governance practice, is it really one that has had a game-changing effect on the auditing/accounting industry or the relationships of independent auditors with their clients?  If one of the goals is to change the culture in c-suites and board rooms surrounding executive compensation, I don't think an auditor ratification type of SOP vote is going to be the catalyst.

6.  I have many more thoughts about SOP, and could go on at greater length about them.  But, instead of doing so, I'll end with these final thoughts.  When contemplating SOP, I think we all need to ask ourselves, "What are we trying to accomplish with this?"  In my mind, what we are trying to accomplish is to create a mechanism whereby a company can extract intelligible information from its shareholders that will be useful to investors, management and the board in improving the company's compensation programs so that they directly or indirectly contribute to the creation of sustained, long-term shareholder value (which I believe necessitates a focus on doing what's good for business instead of an obsession with stock price).  Some feel that an advisory vote in one of the forms already proposed would accomplish that.  I don't share that view, but I do think that something can be created (or may even already exist, but has thus far been utilized in the wrong way) that will meet the needs of investors, managements and boards alike, and I hope that the political storm clouds will at some point part for long enough for there to be an opportunity for us to create such a thing, which I think will be more worth our while in the long run.


Douglas K. Chia

Senior Counsel & Assistant Corporate Secretary

Johnson & Johnson

New Brunswick, New Jersey





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