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Say-On-Pay
By Tyler Collins

The news is littered with items about corporations providing CEOs and senior executives with exorbitant compensation packages, often in spite of poor performance. However, a new trend is emerging:  Shareowners are beginning to demand more reasonable and fair corporate pay practices.

The Dodd-Frank financial reform legislation was passed into law on July 21, 2010. Since then all public companies in the United States have been subject to a “say-on-pay” policy, which allows shareholders to vote on acceptable compensation for company executives. Although the votes are not binding (the board can choose to ignore the shareowners), the policy has created intriguing results.

As might be expected, shareowners have been generous when stock prices are up, and less kind when company performance weakens. And it appears that a growing number of companies are listening to their shareowners. In fact, a Say-on-Pay Review of 2012 Proxy Season Results from Sullivan & Cromwell noted a marked increase in the number of “failed” votes in 2012—the number of companies whose say-on-pay proposals failed to receive at least 50% of the proxy votes cast.

Here’s an example of how shareowner influence is making a difference in the corporate boardroom. A quarter of shareowner votes were cast in opposition to the executive compensation plan at Johnson & Johnson last year; so this year the company changed its long-term incentive program for executives.

Although shareowners do not often vote against executive compensation plans, there is a new trend toward executive compensation that properly reflects company performance.

Calvert Investments has more on the topic here.

Posted: September 12, 2012