Reviews of say-on-pay include condemnations, ambiguity

Hallock moderates panel at compensation conference
Cornell University, ILR School: ICS - Reflections on First Round of Say-on-Pay
Friday, June 17, 2011

“War Stories and Battle Wounds from the Premiere Season,” proved the apt subtitle of a panel on say-on-pay led by Kevin Hallock at the Equilar Executive Pay Summit in San Diego this week. Say-on-pay was the dominant topic throughout this leading national conference, with an estimated 400 attending the session.

“There was a fair amount of complaining about the say-on-pay regulations,” Hallock, director of the Institute for Compensation Studies and a professor of Labor Economics and Human Resource Studies, said of the discussions. “The majority of panelists and attendees, however, seemed willing to admit that the forced transparency did prompt some conversations between shareholders and companies that hadn’t taken place this way before.”

The percentage of “no” votes that should be interpreted as a losing outcome was discussed by panelists. Is a loss defined as getting less than 50 percent of shareholder votes in the affirmative? Or, as some suggested, should anything under 70 percent support be considered a “loss” because it reveals significant shareholder lack of confidence.

Other themes expressed by panelists included:

  • After reviewing this season’s votes, it is still not clear how a company can guarantee a “yes” vote on say-on-pay.
  • Complying with the Dodd-Frank legislation is expensive and although it did lead to some substantive changes in how CEOs were paid, it may result in an increasing homogenization of pay practice.
  • This year may offer no indication of how shareholders will vote next year or beyond, as it’s unclear how big an influence the rebound in stock prices was on shareholder say-on-pay voting.

“This year was just like the opening leg of a race that’s all downhill. The real challenge,” says Hallock, “will come when stock prices fall and shareholders aren’t so happy with their returns.”

Panelists joining Hallock were Irv Becker, national practice leader — executive compensation, Hay Group; John Borneman, principal, Semler Brossy Consulting Group; Mike Halloran, worldwide partner, Mercer; Anne Sheehan, director, corporate governance, California State Teachers Retirement System ; and Jim Wolf, managing partner, Meridian Compensation Partners.