Will “Say on Pay” Become Mandatory?

Despite some news reports that say-on-pay, the practice of giving shareholders a non-binding vote on executive compensation, is not proving extremely successful, some executive compensation experts suggest that the practice will become mandatory with the inauguration of a new administration. Speaking before the American Law Institute-American Bar Association’s annual executive compensation conference, Brian Foley, the managing director of Brian T. Foley &Co. stressed that say-on-pay remains a “hot button” issue.  At the same conference, Ronald O. Mueller, a partner in the Washington office of Givson, Dunn & Crutcher LLP noted that more say-on-pay proposals were voted on and more passed this year than last year. He also pointed out that both presidential candidates have supported say-on-pay legislation, and that Barack Obama introduced one of the currently pending bills.

It is always dangerous to predict what changes a new administration may bring, but the push for say-on-pay seems strong. Companies that have not yet adopted say-on-pay provisions would be well-advised to consider the issue. Getting ahead of the curve might enable them to craft policies that work to their best advantage and would give them time to work with the advisory groups that will lead the voting on say-on-pay proposals. Further, knowing that such proposals may become mandatory might influence the structure of executive compensation packages in advance of shareholder votes on the issue.