November 28, 2011
The UK’s “Forward-Looking Say-on-Pay” Proposal
– Broc Romanek, CompensationStandards.com
It’s worth repeating this blog from Mark Borges from Saturday:
This past week, the United Kingdom High Pay Commission (an independent inquiry into executive compensation) released the results of its year-long study of executive pay. Entitled “Cheques With Balances: why tackling high pay is in the national interest,” the report includes 12 recommendations on ways to combat spiraling executive compensation.
The one that I found most interesting is the recommendation that the current shareholder advisory vote on executive compensation be made “forward-looking.” By this, the Commission means that shareholders would be given the opportunity to vote on a company’s proposed remuneration arrangements for the next three years (following the date of the vote). This would include future salary increases, bonus awards, and all ancillary benefits (such as pension arrangements).
As the Commission notes, this approach would give shareholders a genuine say in the remuneration to be paid to executives, not just the ability to “approve” or “ratify” the pay packages that have already been implemented. It almost goes without saying that this would be a radical departure from the current structure of shareholder advisory votes on executive pay (both in the UK and the US). Given that the concept of shareholder advisory votes originated in UK a mere decade ago, the proposal bears watching – if only to see how it is received in the UK corporate and investor communities.