The Advisors' Blog

– Pearl Meyer, Senior Managing Director, Steven Hall & Partners

I find myself doubting whether the proposed approach to Say on Pay legislation will be effective, let alone accomplish its objectives on a practical level. I think we should consider an alternate approach of limiting participation to committed stockholders, thereby excluding empty voters (ie. those using borrowed shares) and short-term speculators, as well as those with nominal holdings who seek to influence the vote. I would propose that those voting be required to:

1. Own a meaningful stake (similar to the SEC proposal for eligibility to nominate directors such as a specified percentage of outstanding),

2. Own the shares for a meaningful period of time, such as holders for at least one year, and

3. Require actual ownership, rather than borrowed shares.

Hopefully, such owners would be informed, responsible, responsive to the needs of the company and take a constructive approach to the issues of fairness to both employee and shareholder, as well as sensitive to the competitive, retention and motivational aspects of compensation.

Also, I question whether it is necessary to hold such a vote annually – wouldn’t every two or three years be sufficient? A repetitive annual vote will surely become less meaningful and be used principally to express dissatisfaction with an entirely different aspect of the company’s performance (i.e. stock price) as evidenced by the recent votes at Aflac and Sun Microsystems.