What to make of say on pay?

  Just like death and taxes, it was a virtual certainty that public companies were going to have to subject their executive compensation arrangements to a nonbinding vote by shareholders. Now, with the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act) on July 21, 2010, it is an absolute certainty. This so-called say on pay provision of the law will pertain to proxies and business transaction prospectuses for annual or special shareholder meetings that will take place on or after January 21, 2011. It is unrealistic to think that shareholders will have the resources to take a deep dive into the pay programs of the companies in which they have invested. Instead, they will more likely have to rely on the company or on shareholder advisory groups to make a convincing case one way or the other. At this point, approximately 75 companies have voluntarily adopted say on pay, including such household names as Hewlett-Packard, Microsoft, General Mills, Avery Dennison, and Pepsico. Our firm, Farient Advisors, estimates that approximately 20% of large companies have now either voluntarily or involuntarily adopted say on pay. For most of these companies, the vast majority of their shareholders have voted affirmatively for the executive pay arrangements. However, for a few companies, most notably Motorola, Occidental Petroleum, KeyCorp, and Abercrombie & Fitch, the majority of investors voted “no” on the pay programs. And for othe...

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