chance to say "yea" or "nay" to
executive pay may not be driving down CEO compensation,
but itís forcing corporate board members to pay much
closer attention to their shareholders.
years since the Dodd-Frank Act gave shareholders the
right to a nonbinding "say-on-pay" vote,
corporate directors have become wary of the warning shot
that can be fired when too many investors vote
"no" on executive compensation.
impact on boards is actually more significant than the
impact on pay itself, at least so far," said
Hillary Sale, a law professor at Washington University
in St. Louis. "If they get a bad pay vote, next
yearís vote will be one targeting them."
the 2,238 say-on-pay votes so far in 2013, 91 percent of
companies have received 70 percent shareholder approval
or better, according to executive-pay tracker Equilar, a
level that Sale sees as a threshold for good corporate
only 59 companies have seen shareholders reject their
pay packages, but 200 companies have failed to reach the
70 percent threshold. Even profitable companies can run
afoul of institutional investors if theyíre not
careful. Say-on-pay votes have given mutual funds,
pension funds and insurance companies the chance to
assert themselves when they feel the bossís pay has
decoupled from the companyís performance.
Corp. got 91.3 percent shareholder approval for its
initial say-on-pay proposal but support dropped the next
year to 82.5 percent. This year, two firms that advise
shareholders on compensation ó Institutional
Shareholder Services, or ISS, and Glass Lewis ó gave
Target poor marks on pay. Despite Targetís healthy
stock price, investors in June approved the retailerís
executive compensation policies with only 52.1 percent
of the vote. It was a stunning rebuke to a company Wall
Street has long regarded as one of the best-run in the
under 70 percent is really bad," Sale said.
"Youíve got to be on this constantly, you have to
be in touch with your institutional shareholders, and
you canít just do it around the annual meeting."
Buy Co. Inc. also failed its say-on-pay vote a year ago
in the interim between the ouster of CEO Brian Dunn and
the August 2012 hiring of Hubert Joly, getting 38.2
percent approval rating. The companyís board
overhauled its compensation plan in light of the
this yearís annual meeting, Best Buyís compensation
committee let shareholders know that proxy advisory firm
Glass Lewis was recommending shareholder support for
this yearís say-on-pay proposal. But another proxy
advisory firm ó ISS ó recommended a no vote. Best
Buy offered additional justifications for support. The
companyís appeals to shareholders helped it achieve an
83 percent approval rating at this yearís annual
certainly has done something, and the something itís
done has been itís changed the dialogue between
shareholders and the company," Sale said.
that dialogue is fruitful is another question, said Ian
Maitland, a business ethics professor at the University
of Minnesotaís Carlson School of Management.
responding to public outrage over executive pay, has
created a way for certain powerful investors to
influence boards of directors. "Thereís been a
shift in the power of the actors, presumably away from
boards and to institutional investors, but not
necessarily to investors generally," Maitland said.
motives of major shareholders can be
"ambiguous," Maitland said, and unlike boards,
they have no fiduciary duty to shareholders in general.
think that most investors donít pay too much attention
to compensation packages, except in some extreme
cases," he said.