The Advisors' Blog

Interesting article from the Washington Post last week speculating on what the future may hold for “Say on Pay” votes in light of a fairly low success rate this season. Some pundits speculate having a simple “yes” or “no” vote on pay packages is too much of a blunt instrument – and suggest these votes may need to be retooled to focus more clearly on the elements of the pay package.

From our perspective, when advising clients to do a better job in their CD&A explaining how their program accomplishes their goal of “pay for performance,” we suggest they be mindful of a future that could involve “Say on Pay.” Our point to them is: Why wait until the vote is pending to make your arguments to shareholders? Why not be doing the analysis every year to prove the point?

Of course, performing an analysis of how the pay your executives ultimately earn stacks up to that of your peers – and then comparing what your executive’s earn versus how the company performed versus peers – is time-consuming and may yield an answer the client might not like. But without doing the analysis, in our view, it is impossible to make a statement that your plan pays for performance.

In a recent symposium we attended on the issue of “Say on Pay,” each of the proxy advisory firms who spoke on this issue acknowledged their “yes” or “no” recommendations would be based on many different factors, the most predominant of which will be . . . wait for it . . . pay for performance. There is still time for companies themselves to help define what this means, and by doing so in their CD&As, perhaps Corporate America can drive the definitions rather than the advisory services.

Let’s not forget, both Barack Obama and Hillary Clinton have proposed legislation to mandate a non-binding “Say on Pay” vote, so this issue will continue to be debated throughout the upcoming election season – and perhaps beyond that.

– Steve Seelig and Ira Kay