A Primer on "Say on Pay"

Last Updated Jun 20, 2008 5:03 PM EDT

"Say on Pay" is likely to get a lot of traction in coming months with changes in the White House and possibly, in Congress. But what is it, exactly? Here is a brief primer:

What is it? "Say on Pay" is a movement in the U.S. and in Europe to allow shareholders to hold a typically "non-binding" vote on the pay levels proposed for chief executive officers, other top level officials and, in some case, directors.

Why now? Many believe that executive compensation has gotten out of line with actual performance. U.S. Sen. Barack Obama, the likely Democratic presidential nominee, has proposed legislation on the issue and complains that the average CEO made 262 times the pay of the average worker in 2005. "Say on Pay" would spotlight pay issues at annual meetings and make it harder for boards and management to figure pay in seclusion.

Is there another side? Presumptive Republican presidential candidate John McCain agrees that CEO pay may be getting out of whack but thinks that corporations, instead of Congress, should do something about it.

Are companies doing anything?
Yes, but slowly. Activist shareholders such as institutional investor groups have filed more than 90 resolutions this proxy season calling for non-binding compensation votes.

What's the outcome been? Such resolutions received a majority of shareholder vote at eight companies, the Associated Press reports. These include Apple Computer, Alaska Air Group, Ingersoll-Rand Co., Lexmark International Group, PG&E Corp., Motorola, South Financial Group and Tech Data Corp. This May, shareholders of insurer Aflac voted to support the pay of its CEO.

What about elsewhere? Laws for non-binding votes have been introduced in Australia and the U.K.

What's next? Look for more activity after elections this coming November.