Does Losing On Say-On-Pay Actually Mean Winning?

At four annual meetings in the last week, shareholders defeated management’s recommendation for a triennial vote on pay, securing instead an annual say-on-pay vote. The companies in question are Costco, Johnson Controls, Monsanto and Jacobs Engineering, as explained in this blog by RiskMetrics’ director of publications Ted Allen.

The opening spate of annual meetings held under the new advisory vote guidelines brought about by Dodd-Frank has certainly left a few corporate noses bloodied. But could the enforcement by shareholders of annual votes on pay actually help companies in the long run?

With a yearly vote, shareholders have the opportunity at each annual meeting to sound off about pay in a relatively harmless manner. If investors only get their say on pay once every three years, however, they might show their displeasure in other years by voting against compensation committee members. Allen talked to Inside Investor Relations for a story on the Jacobs vote. Here’s an extract:

In an interview, [Allen] says external lawyers and compensation consultants are advising     management to recommend and adopt an annual say-on-pay vote, suggesting that if they don’t,     shareholders unhappy with the compensation plan ‘won’t have any recourse except to vote     against compensation committee members’ in off years.

‘For board members, a vote against the compensation committee feels more like a personal     rebuke’ than a negative vote on the compensation report, Allen says. Companies somewhat on     the fence ‘are going to lean more toward annual votes.’

This all provides plenty of food for thought, especially given that the majority of early filers have already recommended a triennial say-on-pay vote.

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