The Delaware Courts and Say on Pay

We have noted the criticism of Say on Pay by VC Strine in his article published in the Journal of Corporation Law.  In addition, he does not like "professional" independent directors who give in to the demands of shareholders, presumably on matters such as Say on Pay.  He attributes the trend to institutional investors who have interests that diverge from "forced investors."  He ignores evidence to the contrary, including the movement within Congress to mandate Say on Pay at the federal level and ignores the role played by the Delaware courts in the ongoing developments.

With that in mind, we turn to the interview appearing in the WSJ with the CEO of Aflac, Daniel Amos, one of three companies to have Say on Pay in place and the first to actually implement the concept.  It is clear from the interview that Amos has no fear of a shareholder vote.  He views the compensation package as reasonable and based upon reasonable principles.  Moreover, he made it clear that significant opposition to pay packages would result in discussion with investors rather than hostility.  Here are some of the questions and answers:

• WSJ: Why offer investors a vote on executive compensation?
• Mr. Amos: We have never had a question concerning compensation. My initial reaction was, "What had we done wrong?" [Shareholders backing the proposal] told us they liked our pay practices. It was the name recognition. People knew who we were. As I researched it, I realized there was momentum building with the issue of pay for performance. At other companies, people were being rewarded when the shareholders weren't being rewarded -- especially CEOs. Based on chats with several Aflac shareholders, I said, "We ought to do it."
• WSJ: How quickly will Aflac directors change executive-pay practices if you get a significant negative vote?
• Mr. Amos: Immediately. We will have to go back to the large institutions who control the company and ask what they don't like.
• WSJ: Has the coming say-on-pay vote helped your U.S. business?
• Mr. Amos: Just showing we are a transparent company is good. But there is no correlation between sales and this change. It is very important for shareholders, not policy holders, because they are the owners of the company.

In other words, this CEO views the step as non threatening because his compensation process is done with sufficient integrity.  Moreover, he views it as a form of communication with shareholders.  Finally, unlike the more obstreperous opposition expressed by many, including VC Strine, he sees it as a way to depressurize the executive compensation controversy.

Reasonable people may disagree, something that is all part of the debate.  But the issue is whether a judge, who may well be asked to resolve issues with respect to these types of shareholder proposals, ought to be so public in his opposition to them.