Will say on pay play at all companies?

Will say on pay play at all companies? We have recently noted the increase “say on pay” proposals and the experience of Aflec, which granted its shareholders say on pay only to have them approve by 93% the management proposed executive compensation. Even more recently, Qwest shareholders approved a say on pay proposal by 54%. This seeming groundswell of support for say on pay proposals appears not to hold true for all types of companies however. According to a recent story in the Wall Street Journal, financial services companies such as Merrill Lynch and Morgan Stanley saw shareholder support for say on pay proposals drop from 43% last year to just 37% this year.

This decline seems particularly odd given the dismal performances of so many of the firms in question. Share prices are down 49% on average, write-downs are up, but executive compensation continues to soar. Consider as one example of many, the case of Stan O’Neal. Mr. O’Neal left Merrill Lynch last October after the company took an $8.4 billion write-down without a bonus or severance, but with $161.5 million in already earned compensation and retirement benefits. It is worth noting also that even as shareholders at financial firms are softening in their support for say on pay proposals, they are strengthening their opposition to management nominated members of compensation committees.

So what explains this pattern? Is it the nature of the firms and the (to many non-financial professionals) arcane nature of their businesses? Is the identity of shareholders in financial firms different in some meaningful way from shareholders in those kinds of companies where say on pay is gaining traction? Is it simply a matter of timing and market forces causing shareholders in financial firms to be worrying about issues other than say on pay? As with so many issues with regard to the still evolving field of say on pay, only time will tell. If the Aflec model holds across the board and shareholders exercise their say on pay authority to endorse executive compensation we could see more wide spread acceptance of such proposals, or we could see a decline in their use because they are seen as moot. Stay posted.