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Wednesday, August 28, 2013

Strategic CSR - Say-on-Pay

Related to Monday’s opening Newsletter on CEO pay, the article in the url below seeks to assess the state of Say-on-Pay shareholder votes (and, in the bigger picture, the effectiveness of Dodd-Frank) three years into the experiment. The overall assessment is blunt:
“The ‘say on pay’ experiment is a bust.”
Say-on-pay votes, which are non-binding and need only be held every three years, are designed to allow shareholders to evaluate the extent to which the compensation of the firm’s CEO and senior executives reflects their ability to add value, broadly defined. In most cases, however, shareholders appear either to agree with compensation levels or, perhaps more worriedly, not care sufficiently to protest:
“A full 72 percent of companies reporting votes so far have received 90 percent or more shareholder approval for their pay packages. That compares with 69 percent in both 2012 and 2011, … . And shareholders are feeling relatively magnanimous about the rotten apples, too. Only 41 companies out of nearly 1,800 failed so far this year on say-on-pay votes, compared with 49 companies at this point last year.”
The article makes a good point in that large companies are escaping scrutiny even more than small and medium-sized companies, even though it can be argued that it is the leaders of larger firms who should face the greatest demands for accountability:
“That’s partly because the livelihoods of so many people depend on people running big firms, but also because those executives are largely caretakers of already established institutions. Typically, they have displayed neither vision nor entrepreneurialism but an ability to rise through a bureaucracy without offending anyone. When they arrive on the throne, they typically do a little bit better or a little bit worse than their predecessor, without distinguishing themselves in the least. Yet, they get paid as if they were the second coming of Henry Ford.”
Overall, the article’s assessment is a complete failure on the part of the regulation to achieve its primary goals – to introduce a measure of control over executive compensation:
“The final strike against say-on-pay is that it has had no impact on the level of compensation. Quite the opposite. Pay for chief executives was at its highest level ever last year, up 6.5 percent from a year earlier, … . After a brief dip at the height of the recession, pay for corporate chieftains rose 6 percent in 2011 and soared 24 percent in 2010. For those keeping score at home, that sharply outpaces inflation, which was a piddling 1.7 percent last year. Median worker pay didn’t keep up with rising prices in those years.”
Take care

In Shareholder Say-on-Pay Votes, Whispers, Not Shouts
By Jesse Eisinger
June 27, 2013
The New York Times
Late Edition – Final