Say-on-Pay Play-by-Play
As I've said before, some version of a requirement for shareholder advisory votes on compensation (Say-on-Pay) is likely to be adopted in the next few months. The Say-on-Pay requirement will probably be similar to the Corporate and Financial Institution Fairness Act of 2009, recently adopted by the House and described in the ON Securities Cheat Sheet. In other words, Say-on-Pay has become a political football lately.
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[Editor's Note: You may have noticed veiled references to "football" in the title and the first paragraph of this post. The Editor of the ON Securities Blog categorically denies ANY relationship between these references and Brett Favre's announcement Tuesday that he signed a contract with the Minnesota Vikings.]
It looks like shareholder advisory votes will not be required until the 2011 proxy season. Still, it makes sense to keep track of the results of recent advisory votes to see how various companies have fared. Several hundred financial institutions that received TARP funds were required to hold advisory votes last spring, and their recently filed Form 10-Q reports disclose many of the results.
So, what does the scoreboard look like in Say-on-Pay season? Generally, the non-binding proposals to approve executive compensation did very well. Here is a sampling of the results from financial institutions with strong ties to the Twin Cities:
US Bancorp: 92.0% in favor
Wells Fargo Company: 92.8% in favor
TCF Financial Corporation: 69.5% in favor
If the SEC adopts its recent rule proposals, we will no longer have to wait several months to see the results of shareholder votes. Companies will generally have to report them on Form 8-K within four business days. It will practically be possible to follow the results on your BlackBerry, along with football scores.
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[Editor's Further Note: Did I mention that Brett Favre is joining the Vikings? All right, maybe I did have football on my mind.]
Marty,
Thanks for the update. I have been doing a lot of research in this area. Some interesting facts.
- In the UK, pay levels and pay growth remained just about constant when comparing pre 2003 (no Say on Pay) and post 2003 (mandatory Say on Pay) financial reports
- The companies most likely to have positive shareholder value were those who were shown to have "excessive executive compensation or weak compensation policy prior to the votes. Most other company showed little impact.
- In the US, about 25 companies have had shareholder bring votes on this issues recently. In reviewing these companies researchers have determined that the companies were not in the "excessive compensation" or "weak policy" categories. Further more, these companies saw negative shareholder value return after the initiatives were announced and through the voting period.
The one constant change that was seen after Say on Pay took hold was a greater alignment between compensation an Operational Performance metrics. Perhaps this is a good place for companies to start.