The NASPP Blog

One day after Canada’s Manulife Financial Corporation made its announcement to give shareholders a non-binding vote on the compensation structure for top executives, outgoing Manulife CEO Domonic D’Alessandro put his own compensation on the line by saying he would place share performance requirements on his restricted share units that are set to vest in 2011 (see “Manulife CEO bows to critics” from Globe and Mail). D’Alessandro said he was surprised that there was such bad press over the grant (estimated at a $10 million value), which was part of his compensation for the 18 weeks he will work in 2009. At a time when stock prices are down, as is public opinion of company executives, most executive compensation programs are under scrutiny. Even given the public pressure, the voluntary gesture by D’Alessandro sets him apart.

Shareholders, workers, and government agencies are clamoring for ways to ensure that executive compensation provides appropriate incentive for executives to make strong decisions for the company’s growth. The SEC is working to give shareholders access to their company’s proxy statement (see Commissioner Aguilar’s Feb. 6th remarks) as well as considering additional disclosures detailing not only company decisions on leadership structure, but also how the company’s “compensation structures and practices drive an executive’s risk-taking” (See Chairman Schapiro’s April 6th Address to the Council of Institutional Investors). Proxy access and enhanced disclosures may mean an invigorated push for “say on pay” policies similar the one announced by Manulife.

In April of 2007, the House passed H.R. 1257, which would have required companies to adopt a policy for non-binding “say on pay” shareholder votes. The bill stirred up talk about implementing these policies, but was never put to vote in the Senate. It looks like the current environment in the U.S. is forcing a closer look at “say on pay.” Already, banks participating in the TARP are required to institute “say on pay” practices. Even companies not impacted by the TARP are coming out in record numbers with shareholder votes on non-binding “say on pay” policies. According to the New York Law Journal article, “‘Say-on-Pay’: Linking Executive Pay to Performance” there were only seven such proposals put to vote in 2006, with a sharp increase in 2007 in conjunction with the House’s “say on pay” bill to 51 proposals (only 3 of which were approved). Last year, there was a small increase to 76 proposals (9 of which were approved). This year is already looking to be a much bigger year for “say on pay.” Social Investment Forum published a list of 85 companies that were prepared to put “say on pay” policies to vote by the end of March 2009 alone!

The U.S. isn’t the first on board with “say on pay.” In 2002, the UK became the first country to enact legislation requiring executive compensation to be put to a non-binding shareholder vote. Australia also requires a non-binding vote. The Netherlands, Sweden, Norway and Spain all go one step further to require a binding shareholder vote. France is set to adopt a binding vote requirement in 2009, and the Canadian Coalition for Good Governance has come out in favor of “say on pay.”

There is still much debate over whether or not “say on pay” is an effective way to control the risk-taking of company executives. It is clear, however, that providing shareholders more insight into pay practices and giving them a forum to voice their opinion on those practices is something that companies will need to address in 2009.

CompensationStandards.com has been closely following “say on pay.” For more information, go to the “say on pay” portal and don’t miss the “say on pay” practice pointers in the 4th Annual Proxy Disclosure Conference, which is in San Francisco on November 9th; the day before the NASPP’s 17th Annual Conference kicks off.

Speaking of our Conference this year, tomorrow is your last chance to take advantage of our unprecedented early bird rate. Register now, and pay just half the regular registration fee! Don’t count on this deal being extended past the 24th.

-Rachel