Media Clips

National Post

April 16, 2008

'Say On Pay'
Important symbol or Catch-22?; Non-Binding Vote
By Claudia Deutsch

Two years ago, Boston Common Asset Management asked Aflac to give investors a chance to weigh in on top management's compensation.

Daniel Amos, Aflac's chairman and chief executive, was taken aback. "I'm in the typical range of CEO pay, and no shareholder had ever complained," he said.

Then he thought about it and decided, why not? Aflac's shares were rising, so investors were unlikely to feel vengeful toward management.

And even if they did, shareholders were not asking for a mandate, just a retrospective thumbs-up-or-down vote on pay that was awarded the previous year.

This year, Aflac became the first U.S. company to give shareholders a non-binding vote on executive compensation, which investors refer to as "say on pay."

We want people to look at us and say, 'Here's a company that will even let you vote!' " said Mr. Amos, who has headed Aflac for 18 years. "It's symbolic, but it's an important symbol."

Last year, investors filed 60 resolutions asking for a say on pay and got about 44% of the vote, on average.

This year, there were more than 90 such resolutions filed, and while the final tally is not in, they seem to be getting a majority of the votes.

"Shareholders are recognizing, when chairmen of compensation committees understand that their decisions will be subject to a vote of confidence, they try harder to get it right," said Stephen Davis, project director at the Millstein Center for Corporate Governance and Performance at Yale.

A result, said Scott Fenn, managing director of policy for advisory firm Proxy Governance, is that "say on pay is the issue resonating most with shareholders this year."

In the United States, both the House of Representatives and the Senate have proposed bills requiring all public companies to establish shareholder advisory votes on compensation. A handful of companies -- Verizon Communications, Par Pharmaceutical, Blockbuster and RiskMetrics among them -- have agreed to adopt say on pay in coming years. Many more are discussing the issue.

RiskMetrics, which went public last year, is offering say on pay because "it is important to let shareholders influence a topic that they clearly care deeply about," said Ethan Berman, its chief executive.

But he describes say on pay as a Catch-22: It addresses a non-issue at companies that do not overpay their chiefs. "But I don't think it's the answer in a company where executive compensation has gone out of control," he said.

Say on pay is by no means universally lauded in governance circles, either. "Say on pay is a half step, and it's a slippery slope," said Charles Elson, a governance expert at the University of Delaware, who worries that granting say on pay will encourage shareholders to try to usurp board authority on other issues.

In the long run, he and a growing chorus of other governance experts say, shareholders will be better off accepting that it is the board's job to set compensation. If directors do it badly, these experts say, shareholders should simply vote them out of office.