Say on Pay More Likely in Certain Scenarios

Equilar just released their new article on Say on Pay, which isn\’t available to the general public but can be requested here. \”Say on pay,\” for those who aren\’t aware, is the nickname given to the practice of allowing shareholders to vote on proposed executive compensation packages.

There were a couple of key findings in the report. The first was that large-cap companies are about four times more likely to undergo some kind of say-on-pay process than their mid- and small-cap counterparts. There are a few possible reasons for this: the companies involved in TARP, which requires say on pay, are all large; the bailout brought attention to the pay practices of other large companies; executives of larger companies tend to make more, and therefore attract more scrutiny. Regardless, large-cap companies should be particularly aware of the explosion of say on pay among their peers in size.

The second major finding was that shareholder proposals for say on pay flagged in comparison to advisory votes: only 22.3% of shareholder proposals succeeded, while 100% of advisory votes did. Shareholder sentiment may be able to float the idea of instituting say on pay, but that doesn\’t mean that the vote will end in favor of the investors.

In this highly-charged environment, it can sometimes help to set your own terms before they\’re set for you. Four companies in the S&P 500 sought to avoid shareholder discontent by instituting their own say-on-pay policies.

The Obama administration has noted that it would like the SEC to institute say on pay for all the corporations it oversees, but such a decision would require Congressional approval, a goal that\’s increasingly difficult in the entrenched  environment that\’s arisen of late in both parties. It should be interesting to see how the future of this regulation plays out.