This article by Philadelphia partner Doug Raymond and associate John Moore discusses the increasing momentum of the “Say on Pay” trend. Compensation paid to corporate officers almost universally is set by boards of directors, which often have close relationships with officers, without any direct input from the shareholders. The primary purpose of “say on pay” initiatives, however, is to give the company’s shareholders a clear voice on the compensation of the company’s executive officers and to provide a brake on what some shareholders see as excessive compensation practices.
Companies adopting this type of initiative will typically provide shareholders an advisory vote on compensation practices at their annual meeting, which, although non-binding on the boards, can prove very influential if the company has also adopted majority voting requirements for directors. With federal “say on pay” legislation pending and the SEC likely to adopt similar measures in the future, the authors say it’s time for directors and boards to prepare, since it’s “only a matter of time until shareholders get their say on pay.”