The Advisors' Blog

RiskMetrics is not the only entity seeking comments on a paper. Stephen Davis is looking for input on this Millstein Center paper: “Board-Shareowner Communications on Executive Compensation.” The 17-page paper – which is an executive summary and initial findings – presents findings of a six-month research project that included interviews with directors, senior managers and investors on their views of dialouge regarding executive pay. A final paper will be published once more input is received.

Logically, the “say on pay” movement is addressed in the paper. Given that the media contains reports that some investors are now rethinking their views on “say on pay,” some of the research might be dated already, even though it’s not that old. I personally talked to some investors who now find themselves on the other side; and I find myself leaning against it for now (as I have blogged about). So please send Stephen your comments.

On pages 6-7 of the paper, there is this finding related to say on pay:

Compulsion, through crisis or other acute events, is the foundation under most current US corporate initiatives to foster governance dialogues with institutional owners.

Evidence suggests that scandals over executive compensation – whether payouts for failure or backdating stock options – were key contributors in 2007 in motivating certain boards to increase their interaction with shareowners. Exercises in board dialogue on governance have generally not come about in the United States as a product of proactive, long-term strategic outreach by untroubled corporations. This reality has contributed to growing investor conviction that regular dialogue will not spread widely in the absence of compulsion, even where companies are troubled. As a result, many funds back a UK-style annual advisory vote on executive pay policies, a measure that helped open channels of communication between UK boards and their equity owners.

– Broc Romanek, CompensationStandards.com