Corporate Governance

?Say on Pay? Proposals Likely to Become a Central Focus of 2008 Proxy Season

By Jim Hodgson

With the SEC?s recent vote to maintain the status quo -- at least for the time being -- with respect to proxy access (please see Josh Silverman?s post of Tuesday, December 4th, below), what?s a shareholder to do?  Well, perhaps just as desirable as the opportunity to nominate directors is a shareholder?s ability to influence executive compensation.  And that is an idea that is not only gaining traction among shareholder activists; it stands to become a ?hot button? issue for all shareholders in the 2008 proxy season.

Shareholder proposals under Rule 14a-8 that call for an annual advisory shareholder vote on executive compensation have grown in popularity in recent years.  They appeared in significant numbers last year, leading to more than 60 official shareholder proposals on the issue.  And while only four of those proposals actually passed, together they garnered an average of about 40% of votes in favor overall.  With so many near-victories last year, shareholder activists predict that ?Say on Pay? proposals will be both more pervasive and more successful this year.

It is easy to see why:  these proposals have an inherent ?feel good? appeal for just about everyone, including investors, the media, regulators, and politicians; in practice, they promise to narrow the ever-widening gap between those employees most and least well-compensated within corporations; and, in theory, they promote values like shareholder democracy, board accountability, and good corporate governance.

As such, proposals that call for shareholder input into executive pay policies also have very little going against them.  Perhaps the only group in uniform opposition consists of highly-paid executives, themselves.  And those who openly disfavor ?Say on Pay? policies find themselves feeling lonely and looking awkward, as there is scant support for their position.

In any event, with no inbuilt mechanisms to keep ?Say on Pay? proposals off of corporate ballots, expect many more such proposals to appear -- and pass -- this season.

Full post as published by PomTalk on December 06, 2007 (boomark / email).