Push back on Say on Pay

Posted by Marc Hodak on July 22, 2009 under Executive compensation, Invisible trade-offs | Be the First to Comment

While Congress presses ahead on “Say on Pay,” some institutional investors are beginning to rethink their position.  The Say on Pay bill would require an up or down vote by investors each year for every public company.  Even a small pension fund has investments in thousands of companies.  How are they supposed to wade through the SEC-mandated morass that is executive compensation disclosure for every one of those companies sufficient to form an opinion on its adequacy and render a vote?

My firm plows through hundreds of proxies each year in order to determine the relative quality of compensation plans for our research purposes.  We employ a team in India to get the data, and a couple of analysts in New York to plow through the data for a couple of months in order to reach opinions about specific firms.  We’re down to doing this every other year because the effort is so costly, and the quality of plans don’t really change that much from year to year for any given firm.

Activist investors have sipped this tonic, and have come to a conclusion of their own:

Some shareholders say they have already gotten a taste of say on pay voting and find it unwieldy and time-consuming.  The United Brotherhood of Carpenters, whose pension funds have about $40 billion in assets, says it cast more than 200 say-on-pay votes this year at companies participating in the government’s Troubled Asset Relief Program.  These companies needed to get their pay plans ratified by shareholders…

“We think less is more,” said Edward Durkin, the union’s corporate affairs director. “Fewer votes and less often would allow us to put more resources toward intelligent analysis.”

Unfortunately, they’re making this case to congressmen who don’t even read the laws that they pass.