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Say-on-pay coming soon

By Sheyna Steiner · Bankrate.com
Wednesday, January 12, 2011
Posted: 8 am ET

Shareholders were given the right to vote on executive pay in the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Every one, two or three years, according to the law, investors will be able to vote executive compensation packages up or down. The vote can be nonbinding or binding.

Additionally, at least every six years, shareholders will vote on how frequently the say-on-pay votes should occur.

Companies with annual meetings occurring after Jan. 21, 2011 will be required to hold a say-on-pay vote as well as a say-on-frequency vote.

Companies will be able to recommend a frequency, but shareholders will still be able to cast a nonbinding vote on how often executive compensation should be evaluated by investors.

According to a recent poll of 135 companies by Towers Watson, 51 percent of companies expect to hold the say-on-pay votes annually. Thirty-nine say every three years and only 10 percent would prefer to vote on pay every two years.

A story on Plansponsor.com on Jan.5, "Companies not quite ready for say on pay," reported that the poll found that only 8 percent of the respondents to the Towers Watson poll have a process in place for evaluating the success or failure of their compensation plans.

If it's 50/50 maybe they'll toss a coin. Who knows?

The companies who do have a plan say that 80 percent approval will constitute a success.

A Reuters story on Jan. 5, "Analysis: Companies tweak CEO pay packages ahead of vote" reported that companies are not taking the upcoming say-on-pay votes lightly.

While say-on-pay votes are advisory only, most companies want to avoid the embarrassment of a "no" vote. In addition, proxy advisory firms have said that they may recommend that shareholders vote out any boards that ignore say-on-pay votes.

Companies are especially reluctant to draw disapproval from proxy advisory firms. These advisers are expected to gain influence because mutual funds and other big investors do not have time to review every pay plan.

According to the story, companies are jettisoning controversial pay practices. For instance, Visa has curtailed personal use of its company jets by top executives.

Mutual fund investors can find how their mutual fund companies votes by going to the fund company's website or by requesting proxy voting guidelines. A website called ProxyDemocracy.org may be able to show you how your fund voted as well.

What do you think of the say-on-pay rules? What else should be done in the corporate governance realm?

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