Despite disappearing profits and a shrinking economy, many of America's top CEOs and senior executives continue to command higher pay packages.

A recent Associated Press study of Standard & Poor's 500 companies revealed that the median pay for CEOs in 2007 was about $8.4 million. Not bad for a weakening economy.

Escalating executive compensation has resulted in institutional shareholders demanding a "say on pay" for executive compensation packages. The say on pay movement began in 2006, when institutional shareholders began submitting annual meeting proposals to companies requesting that shareholders be allowed to vote on all or certain aspects of executive compensation, the results of which would be nonbinding on the company.

According to RiskMetrics Group Inc., in 2006 the annual-meeting proxy statements of seven companies had a shareholder proposal on executive compensation, netting about 40% yes votes on average. In 2007, 52 proxy statements contained a say on pay proposal, averaging 42.7% support for the proposals. By 2008, 54 companies have had say on pay proposals in their proxy statements. All told, a majority of shareholders at nine companies gave say on pay the thumbs-up in 2007, compared with eight in 2006. These results are not staggering, and the movement has not gained the momentum advocates had hoped.

Proponents argue that the say on pay voting mechanism is important to the system of checks and balances between shareholders and boards of directors. Shareholders believe that executives are raking in huge earnings despite languishing stock prices and corporate earnings, and an extra layer of regulation will ensure that executive compensation is more closely tied to corporate performance. Say on pay is good corporate governance and a way for companies to promote transparency and accountability.

Opponents of say on pay generally cite three major points. First, a board of directors is elected by the shareholders to oversee management in the best interests of the shareholders. Central to that role is hiring and maintaining executive talent and incentivizing their performance. To shift that function to the shareholders, even if indirectly through an advisory vote, would work to undermine the essence of the board's independent governing function. Opponents also argue that shareholders are ill equipped to vote in an informed way on say on pay, as they do not have access to the same information as directors to evaluate whether the amount and types of compensation are appropriate.

Lastly, the say on pay vote is criticized as being ineffective. A yes or no vote, opponents argue, contributes little to resolving disputes about executive compensation. And with only nonbinding votes on the table, little can be done to force companies to implement them.

Say on pay has now become a significant campaign issue. In an interview with Fortune magazine earlier this summer, Sen. John McCain, the Republican presidential nominee, supported the say on pay concept, stating that "[corporations] can best restore their credibility with the American people by basing their compensation on performance." McCain, however, stops short of advocating that say on pay be written into law, as Britain has done.

On the Democratic side, Sen. Barack Obama supports new laws on the matter. In an April 2008 speech he said, "It's about changing a system where bad behavior is rewarded so that we can hold CEOs accountable, and make sure they're acting in a way that's good for their company, good for our economy, and good for America, not just good for themselves."

Political posturing aside, the populist message of reining in corporate greed and excessive wealth resonates with most Americans, particularly now, when there is an increasing divide between rich and poor. Although few people will question the merits of promoting sound public policy and accountability in the corporate world, there is disagreement on how say on pay contributes to those goals.

Both sides have valid points.

Corporations and shareholders should therefore focus on crafting a strategy that more closely aligns executive compensation with achieving their shared goal of maximizing corporate profitability.

Mary-Laura Greely and Pamela Greene are members of the corporate section at Mintz, Levin, Cohn, Ferris, Glovsky and Popeo PC.