Hurray for Say on Pay (Not Really)!

So the Treasury Department sent proposed "say on pay" rules to Congress for consideration. These rules would require public companies to offer shareholders a chance to vote on executive pay arrangements. The vote would be non-binding. What's the point?

Shareholders can already comment on pay. They can attend the annual shareholder meeting and moan all they want. Believe me, I've seen them do it. Sometimes they even make some good points. But, more commonly, they focus on a single issue that seems out of line to them. They don't look at the total picture. They don't have the data and material the compensation committee had when they made the decision. Regardless, they have a chance to comment. As a compensation consultant I've attended those meetings and heard the comments. And I've seen the committee discuss them earnestly.

There's another way they can vote. It's called "selling the shares." If I own stock in a company I read the proxy. It outlines the pay philosophy. It lists the pay levels and arrangements. I can determine if there is consistency and if the philosophy makes sense. If I don't like what I see, I get out.

There are bad apples out there. Plenty of them. My experience is that they are ultimately punished by the market. For every company with bad practices there are hundreds that do their best to initiate strong guidelines and arrangements. Now those companies will need to spend time and money satisfying a silly rule (assuming it's passed). It's time and money better spent on more serious issues.

Article Categories: Compensation And Business Growth
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