Say on Pay and the First Year Results

The first year results are in for say on pay.  Most companies approved the compensation packages.  According to the WSJ, only 39 companies voted down the pay packages. Negative votes occurred a companies such as HP and Stanley Black & Decker. 

There are several observations that can be made about these results.   

First, they show that opposition to say on pay was overstated.  The newly acquired authority was not used by unions and public pension plans to extort additional, non-shareholder benefits.  This suggests that those using the same argument to opposed shareholder access are also overstating the risk.     

Second, the data shows that proxy advisory services do not have the disproportionate authority often assigned to them in the voting process.  As the article noted:  "Proxy advisory firms also didn't wield nearly the power over the votes that some had predicted. Institutional Shareholder Services recommended no votes for 298 companies so far this year."  While this does not quite contradict the observations of the Delaware Chancery Court in Yucaipa with respect to the power of proxy advisory firms, it comes closes.  See Yucaipa ("the reputable proxy solicitors who testified in this case both agree that Risk Metrics exercises a great deal of influence over the vote of many of its clients and that these clients often hold an important part of the available vote in contests.").

Third, the defeat of 39 pay packages understates the influence of say on pay.  It is probably just about the right number to make companies realize that there is some potential for embarrassing results.  As a result, they have an incentive to fix their pay packages before submission to shareholders.  In other words, the strength of say on pay is the discussion it engenders with shareholders and the prophylactic changes that are made in advance of shareholder approval. 

The data demonstrates that giving shareholders a bit more say on the governance of the company is healthy and appropriate.