Microsoft Say-On-Pay Is Pressure-On-Tech-Firms

On Friday, Microsoft announced that its board approved a say-on-pay plan, in which shareholders will participate in an advisory vote on executive compensation. But this is more than a dry scrap thrown to investors. Even a non-binding vote creates real pressure on top management and, even more so, on other companies.

As I mentioned back in May, say-on-pay has seen some significant support in the tech sector, including Intel adopting it in January, Apple getting it after a reexamination of a shareholder vote, and Verizon also implementing an advisory version. Although advisory votes may seem mere formalities, they make investor interests clear and aren't something that boards or management teams can ignore with impunity.

The impetus for the interest is corporate governance and the role that executive compensation plays. Many investors, particularly some of the large and influential institutional investors and high profile names like Warren Buffet, have become disenchanted with how executive compensation can seem unconnected to the value they bring shareholders. So getting a voice in the process has become a top priority for many heavyweights, including the California Public Employees' Retirement System (CalPERS), the largest public pension fund in the country.

What many people forget is how companies not only compete for customer dollars, but for investment dollars as well. Talk to investment relations professionals and you'll hear how much of their work is improving perception of their public corporations to become a choice of investors. Increased demand for the stock also increases the price, which then keeps shareholders happy and the management team in jobs and holding stock options that are worth more.

What Microsoft did was a smart bit of competitive maneuvering. By actively offering advisory say-on-pay, the board accomplished a number of goals:

• satisfy, or at least calm, corporate governance activists
• create a perception of focus on shareholders
• avoid a potentially embarrassing confrontation at a proxy meeting
• differentiate itself from other tech corporations that tried to discourage say-for-pay

Image via stock.xchng user lusi, site standard license.