IROs have to convince on compensation as 'say on pay' gains momentum

Mar 08, 2007

WASHINGTON, DC -- Picture planning a roadshow designed not to highlight your company's financials but to encourage shareholders to ratify your executive pay packages with a 'yes' vote on the proxy. This is one idea that governance experts are floating as executive compensation is debated at a House sub-committee hearing in Washington today.

On February 14, when Aflac announced it would become the first US company to give shareholders an advisory vote on executive compensation, the concept of 'say on pay' suddenly began to command some serious attention.

Following closely on the heels of this ground-breaking decision by Aflac, Barney Frank (D-MA), chairman of the House Financial Services Committee, introduced legislation (HR 1257) that would let shareholders vote 'yes' or 'no' on a company's executive pay packages.

Although this issue has primarily been discussed by boards and corporate secretaries, IROs could soon get in on the act. Cary Klafter, Intel's corporate secretary and VP, legal and corporate affairs, says that he's kept IR abreast of 'say on pay' developments so that the company isn't blindsided by an investor inquiry. Should an advisory vote come to pass, IR might be 'the tip of the spear' for initiating a shareholder conversation about pay, Klafter suggests.

Meanwhile, Stephen Davis, a fellow at Yale's Millstein Center for Corporate Governance and Performance, urges companies to begin considering how a dialogue about executive compensation might work. In the UK, where a 'say on pay' vote has been required since 2003, 'the measure has produced a dramatic increase in dialogue between investors and boards,' says Davis.

Taking a company's pay message on the road is one of the suggestions Davis offers in a white paper due out in April, entitled, 'Does say on pay work? Lessons on making CEO compensation accountable.'

'The white paper will recommend that companies think about producing roadshows not just for touting financial performance but for entering into a dialogue with shareholders about pay packages,' says Davis. 'If you have a dialogue with some of your top investors, you'll quickly get a sense about what you can sell and what you can't sell. It's not rocket science.'

by Elizabeth Judd

© copyright 2007 Cross Border Ltd

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