Companies prepare to implement ‘say on pay’
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Investors are getting a greater say this month on executive pay, and large public companies are gearing up for major new input in the way they set salaries for top officials.
Under the financial reform law enacted last year, publicly traded companies must implement “say on pay” requirements, which give shareholders an advisory vote on compensation for their five top-paid executives at least once every three years.
The vote would come as part of the annual shareholders meeting. In addition to voting for company directors and any shareholder resolutions, stockholders would get a yes-or-no vote on the company’s executive pay plan. The new provisions take effect Jan. 21.
The votes will be nonbinding, but companies that go against their shareholders’ advice risk incurring the ire of investors as well as major shareholder advisory firms such as lnstitutional Shareholder Services, said Brian J. Lane, a corporate securities lawyer and partner with Gibson, Dunn & Crutcher.
Lane briefed a group of about 50 corporate directors and attorneys this week at the California Club, a downtown Los Angeles business club.
Although the Securities and Exchange Commission is still finalizing its say on pay rules, companies will need to implement the new required votes at their first meetings after Jan. 21, he said.
Chuck Callan, vice president of regulatory affairs for Broadridge Financial Solutions, a major provider of proxy voting services, said the company has worked out some technical glitches that he called jokingly ‘a mini-Y2K,’ and he expects the first round of shareholder voting on pay to go smoothly.
While executives might not enjoy the added degree of scrutiny of their paychecks and perks, corporate board members are also worried about other provisions of the financial reform bill still to come, M. Christian Mitchell, president of the Southern California chapter of the National Assn. of Corporate Directors, said after the meeting.
In particular, Mitchell said, a hot-button issue for his members has been the “proxy access’ called for in the new law. It allows shareholders owning at least 3% of a company’s stock to propose their own nominees for up to one-quarter of the board of directors.
The SEC has adopted regulations to provide for such votes, but they are on hold in the face of a challenge by the U.S. Chamber of Commerce and the Business Roundtable.
-- Abby Sewell
