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Say on Pay Final Guidelines

After a great deal of effort the final Say on Pay (SOP) guidelines that I co-authored for the US Proxy Exchange have been posted to their website. (http://proxyexchange.org/ ) Here is an excerpt of the press release announcing the posting of the final guidelines:

Today, the United States Proxy Exchange (USPX) released standards for shareowners to use in making say-on-pay voting decisions. Congress’s new “say-on-pay” rules allow shareowners to express an opinion on executive compensation at annual meetings. But to make informed voting decisions, shareowners must first assess the compensation packages boards propose. That is not easy, since they tend to be staggeringly complex. Even sophisticated business professionals have a difficult time evaluating them, so how can average shareowners hope to do so?

This is not an idle issue. In the 2011 proxy season, institutional investors acted with breathtaking irresponsibility, collectively approving 98.3% of compensation packages. They did this as executive compensation continues to skyrocket. In 1965, CEO pay at large companies was 24 times the average worker’s wages. In 2010, that ratio was a staggering 343 to 1. Responding to the irresponsibility of institutional investors, John Harrington of Harrington Investments commented:

… if fiduciary duty, including ERISA, were truly enforced, lots of trustees, directors, administrators and managers would be in jail.

If shareowners — individual investors as well as small, medium and large institutional investors — do not start voting down the majority of compensation packages, they will have become part of the problem with executive compensation. A simple approach would be to vote against all executive compensation packages, but that would be self-defeating. If boards know compensation packages will be voted down no matter what they contain, those boards will have no incentive to make changes. Since say-on-pay votes are advisory, they would have no impact.

The USPX guidelines propose easy ways shareowners can review firms’ compensation packages and make reasonable say-on-pay voting decisions. The guidelines are predicated on the belief that some levels of compensation are so outlandish as to be unreasonable irrespective of a firm’s or CEO’s performance. The guidelines assist shareowners in deciding how and where to draw that line and then to identify compensation packages that cross the line.

Stop in and take a look at the guidelines and leave some feedback.  This is the beginning of backlash on exorbitant CEO pay.  We look forward to your help on this pressing social issues.
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