Say on Pay legislation. What do you think about it?

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SocialFunds.com -- As public outrage over excessive executive compensation grows in the wake of the economic crisis, investor networks have responded by introducing record numbers of so-called Say on Pay shareowner resolutions in 2009. One network of over 70 institutional and individual investors, organized by the AFSCME Employees Pension Plan and Walden Asset Management, has filed resolutions at over 100 US corporations for the 2009 proxy season.

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Say on pay is a term used for a rule in corporate law whereby a firm's shareholders have the right to vote on the remuneration of executives. Often described in corporate governance or management theory as an agency problem, a corporation's directors are likely to overpay themselves because, directly or indirectly, they are allowed to pay themselves as a matter of general management power.[1] Directors are elected to a board that has a fiduciary duty to protect the interests of the corporation.[2] In large listed companies, executive compensation will usually be determined by a compensation committee comprised of board members.[3] Proponents argue that “say on pay” reforms strengthen the relationship between the board of directors and shareholders, ensuring that board members fulfill their fiduciary duty. [4] Critics of the policy believe that “say on pay” does not effectively or comprehensibly monitor compensation, and consider it to be reactionary policy rather than proactive policy, because it does not immediately affect the Board of Directors. Some argue it is counter-productive because it diminishes the authority of the Board of Directors. [5] The effect of ‘say on pay’ measures can be binding or non-binding, depending on regulatory requirements or internal corporate policy as determined by proxy votes.

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