Say on Pay 2010

Comments on Harvard Business Review's "How to Fix Executive Pay"

The Harvard Business Review is running an online debate entitled "How to Fix Executive Pay."  I encourage everyone to follow this HBR debate as they have an all-star team of contributors. A recent post by Anne Sheehan, director of corporate governance for the California State Teachers’ Retirement System (CalSTRS), suggests part of the the solution is to "Give Shareholders Say on Pay." I've posted my response to Ms. Sheehan's piece at the HBR site and now reprint it here:

This piece starts out with the bold assertion, "Executive pay is broken." The title of the piece is "Give Shareholders Say on Pay." Thus, one would expect some kind of argument to follow that would clearly lay out why giving shareholders a "say on pay" will fix the broken executive pay. Finding none, this piece becomes a repeat of the many other articles, letters, blogs, tweets, speeches and shareholder proposals claiming that say on pay will actually mean something to someone. The recent mandatory say on pay pilot program for TARP companies shows that say on pay is practically meaningless. To date, out of all of the TARP companies that have given their shareholders a say on pay, not one of them has "lost" the vote. That's right, the shareholders of every TARP company so far have "approved" executive pay via the say on pay vote by votes of over 50% at each of these companies. And these are the companies that brought our financial system and the global economy to its knees. The votes were cast on the pay that was given out in the previous fiscal year, when all of this was happening. So, for all of the talk about shareholders not standing for executive compensation practices that incentivized excessive risk taking, we're seeing contrary results, and that's with 20-20 hindsight! One would have expected the say on pay vote to be overwhelmingly negative at places like Citi and Bank of America, but, for whatever strange reason, they weren't. I'm not saying that I agree with any of these votes or approve of the compensation policies, practices or amounts at any of these financial institutions, but apparently the shareholders, when given the opportunity, have not collectively raised a major objection. If that's the case, then what is the point of say on pay? If this is what the votes look like right after the meltdown, why does anyone think that say on pay is going to fix, or even slightly change, anything? I've got to think that the people who saw say on pay as the solution, or even part of the solution, to the executive pay conundrum are disappointed with what we are seeing in this initial experiment. For all of the time we have spent arguing about it, it ended up being a complete dud. Time to move on and work together to create something that will actually be useful to somebody (other than perhaps a politician).

Doug Chia, senior counsel and assistant corporate secretary, Johnson & Johnson

Say On Pay Part of Reform Proposal

As indicated this Pensions & Investments article and in Secretary Geithner’s statement compensation (included below), there has been a major breakthrough on the Advisory Vote, or say on pay. The Administration is supporting legislation on say on pay which would give the SEC the authority to require all companies to institute the Advisory Vote.

Clearly this is an important step forward in making this a reality, building on the hard work on many investors and a number of companies that have supported this reform the years.

The announcement comes at the end of a very active proxy season on executive compensation with close to 100 companies receiving Advisory Vote resolutions and votes averaging 47% with 18 companies receiving votes over 50% .

A number of pay consultants and conservative groups have begun criticism charging the government with ‘meddling’ in the compensation process. Ironically, say on pay does not provide for a role for government ( unless they are huge owners) but instead gives owners the platform for feedback.