The Advisors' Blog

– Broc Romanek, CompensationStandards.com

Here’s a blog by Willis Towers Watson’s Jim Kroll:

The concept of say on pay has always been strongly connected with setting executive pay appropriately. Yet, in the wake of a contentious annual general meeting season in the U.K., there is compelling evidence that shareholders need to reconsider this traditional link.

From now on, we may want to think about say-on-pay efforts as having a direct impact on retention of key talent. The balance of reputational and talent risk is playing out in unexpected ways and is something that more companies will want to take into account when determining their own approach to shareholder engagement.

Critics of say on pay have long contended that these purely advisory votes (in the U.S. at least) are largely meaningless and are designed merely to shame company management and boards in the rare cases where executive pay crosses the line. In fact, the U.S. experience to date suggests that the reputational risk posed by unfavorable say-on-pay votes is relatively low.

While proponents of say on pay contend that giving shareholders a voice on executive compensation has helped sharpen the link to company performance and has discouraged the use of the most egregious pay practices (e.g., tax gross-ups), it seems pretty clear that these votes pose relatively little reputational risk for most U.S. companies.