Inviting Comments on Chia’s “Ten Things
to Keep in Mind”
The list of “Things to Keep in Mind”
below is offered for your
consideration and comment by Douglas K. Chia, Senior Counsel & Assistant
Corporate Secretary of Johnson & Johnson and a member of the Forum’s Program
Panel for “Say on Pay.” (It should be noted that
Mr. Chia is of course presenting his own personal views and not the
positions of Johnson & Johnson.)
It is important for people who actually understand the processes
and decision-making requirements to think about these issues while “Say on
Pay” is being tested this year – and it is also important that you tell each
other what you think.
You can either send your comments to me or post them directly on the
Say on Pay 2009 clearinghouse web site, where Mr. Chia’s list will also
be posted. If you send the comments to me, you should of course say whether
you want them to be considered private or reported to other Forum
participants. Comments intended for reporting will of course be posted on
both the SOP 2009 clearinghouse and on the Forum’s regular web site.
GL – March 13, 2009
Lutin & Company
575 Madison Avenue, 10th Floor
New York, New York 10022
Ten Things to Keep in Mind When Creating a “Say on Pay” Requirement
With over 300 U.S. public companies now subject to a “say on pay”
requirement, many experts in the corporate governance world have declared
say on pay for all U.S. public companies to be a fait accompli and are
looking to Rep. Barney Frank, as Chairman of the House Financial Services
Committee, to enact this into law. Here is a list of ten things that I
would want those who are drafting the ultimate laws and regulations to keep
Whatever “say on pay” ends up looking like, let’s make sure it yields
information that will be useful for investors, companies (management) and
Before implementing say on pay, let’s constantly ask ourselves, “What we
are trying to accomplish with say on pay?” and see if the proposed
solution would actually help to accomplish that goal.
Before implementing a say on pay, let’s examine whether the current
disclosure requirements yield a product that lends itself well to this
kind of vote. If not, what kinds of changes need to be made? What
additional information is needed?
“say on pay” is enacted, let’s use this opportunity to consider reasonable
reforms of the shareholder proposal process and easing restrictions on
companies’ ability to communicate with their beneficial owners.
Phrasing matters. Say on pay must be clear on exactly what shareholders
are being asked to vote.
Say on pay doesn’t necessarily have to happen at every company every year,
and may actually be more effective if it’s not an annual vote.
careful of the “it can’t hurt” argument. There are always unintended
consequences. Recent history has shown that attempts to place downward
pressure on executive compensation have sometimes had the opposite
effect. If say on pay votes end up being meaningless, an important
opportunity will have been lost.
Let’s first hear from the companies that have adopted and tried say on
pay, or are trying it for the first time this year, to see what their
experiences have been and what they were able to gain from it. Let’s also
watch carefully the upcoming say on pay votes at the TARP companies before
expanding this to the rest of the market.
Let’s remind ourselves of the importance of the diversity of state laws
before Federalizing another aspect of securities law, carefully balancing
the pros and cons.
Involve corporate governance professionals who work at corporations in the
process of considering and creating this. Don’t just assume that we’re
all opposed to reforming executive compensation. Since we see what goes
on in companies and boardrooms, we bring an important perspective to the
discussion and may be helpful in identifying what will be effective and
what may end up setting things back.
Douglas K. Chia
Senior Counsel & Assistant Corporate Secretary
Johnson & Johnson
New Brunswick, New Jersey